Acting as the “Bank of Mum and Dad” (BoMaD) has become a vital role for many parents and grandparents in the UK, helping children or grandchildren with major life milestones like buying a home, attending university, or starting a career.<\/p>\n
Recent research from estate agent Savills suggests that half of first-time buyers get help from \u2018BoMaD\u2019 with an average of \u00a355,572 given in loans or gifts to children or grandchildren.\u00a0\u00a0While this support can significantly help your loved ones\u2019 lives, it requires careful planning to avoid added financial strain for yourself or unexpected tax liabilities.\u00a0\u00a0This guide explores practical ways to provide financial help, key tax considerations and the role of a financial planner in ensuring you support your family without compromising your own future.<\/p>\n
Ways to help your children financially<\/strong><\/p>\n Supporting your children or grandchildren financially can take many forms, each tailored to their specific needs and your circumstances.\u00a0\u00a0One of the most common ways is assisting with a house deposit. You can gift a lump sum directly, though this will likely have tax implications, particularly with inheritance tax (IHT) in mind. It is also possible to provide a loan with agreed repayment terms to maintain clarity.<\/p>\n Another option is contributing to a Lifetime ISA (LISA), which allows your child to save up to \u00a34,000 annually, with a 25% Government bonus (up to \u00a31,000 per year) for first-time buyers purchasing properties worth \u00a3450,000 or less.\u00a0\u00a0Schemes such as the\u00a0Barclays Family Springboard mortgage\u00a0allow you to use your savings as security, which is returned after a set period, offering a low-risk way to help.<\/p>\n University costs represent another significant expense where your support can make a difference. Tuition fees and living expenses can quickly accumulate, particularly for students living away from home.\u00a0\u00a0You might choose to pay tuition fees directly, cover living costs like rent or food, or set up a\u00a0Junior ISA\u00a0(JISA), which allows tax-free savings of up to \u00a39,000 per year for children under 18. The funds become accessible when the child turns 18, making it an ideal vehicle for education or other milestones. This approach not only helps with costs but also encourages long-term financial planning.<\/p>\n When your children or grandchildren start their careers, they often face financial challenges, particularly with rising living costs. You could provide a regular allowance to help with rent or bills, offer a lump sum to ease their transition into the workforce, or assist with budgeting to encourage future financial independence. Allowances such a this have important IHT implications however, so it’s important to proceed with caution and understand the rules.<\/p>\n Beyond these common areas, you might consider helping with other significant expenses, such as weddings, purchasing a car, or even funding a business venture.\u00a0\u00a0Contributing to a wedding can alleviate financial pressure, while a reliable car can support their independence, particularly if they\u2019re commuting for work. Parents can make a gift of \u00a35,000 without any IHT liability for a child\u2019s wedding. A grandparent can gift \u00a32,500 to a grandchild or great-grandchild.\u00a0\u00a0If your child is entrepreneurial, investing in their business could be an option, but this carries risks. It\u2019s worth seeking financial advice to ensure this is done as carefully as possible, as business ventures can be unpredictable.<\/p>\n Important tax considerations<\/strong><\/p>\n Providing financial support can have tax implications that, if not carefully managed, could lead to unexpected liabilities. Understanding these is crucial to making informed decisions.<\/p>\n Inheritance tax is a key consideration when gifting money. You can gift up to \u00a33,000 per year without incurring inheritance tax.\u00a0\u00a0Larger gifts are exempt from inheritance tax provided you live for seven years after making them.\u00a0\u00a0If you need to sell assets, such as a second home or investments, to fund your support, you may face capital gains tax (CGT) on any profits if the asset is outside of a tax wrapper such as a pension or ISA. For the 2025-26 tax year, the\u00a0CGT allowance\u00a0is \u00a33,000, meaning you can realise gains up to this amount tax-free.<\/p>\n Beyond this, gains are taxed at 18% for basic rate taxpayers and 24% for higher rate taxpayers on most assets. Couples can split assets to combine their allowances for a \u00a36,000 tax-free sum.\u00a0\u00a0When accessing pensions to fund your support, you can withdraw 25% of your pension pot tax-free, up to a maximum of \u00a3268,275, but the remaining 75% is taxed as income, potentially pushing you into a higher tax bracket.<\/p>\n Withdrawal from a pension also triggers the Money Purchase Annual Allowance (MPAA) which significantly reduce the amount you can contribute each year. This can be a big problem if you\u2019re still in work.<\/p>\n There are more potential pitfalls to avoid. Giving away too much could jeopardise your financial security, particularly in retirement. Large gifts or pension withdrawals might also create unforeseen tax liabilities, such as a significant CGT bill from selling a second home. Consulting a financial planner can help you navigate these risks.<\/p>\n How a financial planner can help<\/strong><\/p>\n Engaging a financial planner can make a significant difference when acting as BoMaD, helping you balance generosity with your own financial security.\u00a0 They bring expertise to manage complex financial decisions and avoid costly mistakes.\u00a0 A financial planner can assist with tax planning by structuring your gifts and withdrawals to minimise liabilities.\u00a0\u00a0Retirement planning is critical to ensure that helping your family doesn\u2019t compromise your own financial future.<\/p>\n A planner can assess your pension, savings, and other income sources to confirm what you can afford to give. They can also analyse your cash flow to determine how much you can safely give away, ensuring your lifestyle remains sustainable.\u00a0\u00a0Acting as BoMaD is a meaningful way to support your children or grandchildren in achieving their goals, whether it\u2019s buying a home, funding education, or starting a career.<\/p>\n However, it\u2019s essential to approach this role with careful planning to navigate tax implications and protect your financial security.\u00a0\u00a0By understanding your options, considering taxes like inheritance and capital gains, and working with a financial planner, you can provide support while safeguarding your future. Professional advice tailored to your circumstances can make all the difference.<\/p>\n","protected":false},"excerpt":{"rendered":" Acting as the “Bank of Mum and Dad” (BoMaD) has become a vital role for many parents and grandparents in the UK, helping children or grandchildren with major life milestones like buying a home, attending university, or starting a career. Recent research from estate agent Savills suggests that half of first-time buyers get help from \u2018BoMaD\u2019 with an average of \u00a355,572 given in loans or gifts to children or…<\/p>\n