The Bank of Mum and Dad: Tax-Efficient Ways to Help Your Children Onto the Property Ladder

As property prices continue to rise, many first-time buyers face the daunting reality that homeownership is out of reach without help. Increasingly, parents are stepping in to support their children — so much so that the “Bank of Mum and Dad” is now considered one of the UK’s largest sources of property finance.

But when gifting money or buying property for your children, it’s vital to consider the tax implications. The right structure can offer long-term benefits. The wrong one can lead to unexpected Capital Gains Tax (CGT), Stamp Duty Land Tax (SDLT), or Inheritance Tax (IHT) liabilities.

Here’s a detailed guide to the main ways you can help — and how to do it tax-efficiently.

1. Buying the Property Outright or Jointly With Your Child

If you’re in a position to purchase a property outright, you may choose to:

• Buy it in your name and gift it later
• Buy it jointly with your child

Each approach carries different consequences.

Outright Purchase Then Gift

If you purchase the property and gift it shortly after (before it increases in value), there’s no CGT to pay. But if the gift is made after the property has appreciated, you will be treated as if you sold the property at market value, and CGT will apply to the gain — even if no money changes hands.

If you gift the property and survive seven years, the value leaves your estate for IHT purposes. If you pass away within three years, IHT may apply at 40%. Between three and seven years, taper relief may reduce the tax.

SDLT is generally not payable on a gift — unless the property is transferred with an outstanding mortgage, in which case SDLT is based on the value of the mortgage transferred.

Joint Purchase With Your Child

Buying jointly might seem like a good compromise — you help with affordability, and they get on the ladder.

But beware:

• If you already own a home, your share in the new property is classed as a second home, triggering the 3% SDLT surcharge.
• When the property is sold, your child’s share should qualify for Principal Private Residence Relief (PPR) if they lived in it. Your share, however, will not, and will likely attract CGT at 24% on your portion of any gain (2024/25 rates).
• For IHT purposes, your share remains in your estate.

2. Gifting a Deposit

Gifting a deposit is one of the most common forms of assistance and often the most straightforward.

If you gift your child money for a deposit:

• There is no CGT or SDLT on the gift itself.
• The gift becomes a Potentially Exempt Transfer (PET) for IHT — and leaves your estate if you survive seven years.
• If the child is buying with a partner, it’s advisable to protect the gift through a deed of trust.

A deed of trust:

• Clarifies whether the money is a gift or a loan
• States how proceeds will be divided if the property is sold
• Protects your contribution in case of a relationship breakdown

This is particularly useful where a parent wants to ensure their financial help benefits their child exclusively.

3. Lending Money to Your Child

Rather than gifting money, some parents prefer to lend funds — either for a deposit or to purchase a property outright.

This approach can:

• Avoid the gift being part of the child’s estate (e.g. in a divorce)
• Allow the parent to retain control over repayment

To do this effectively:

• Draft a formal loan agreement outlining terms, interest (if any), and repayment schedule
• Disclose the loan to any mortgage lender, as it may affect affordability

Note: If a lender views the loan as increasing risk, they may reduce the mortgage offer — or reject the application.

For IHT purposes, the loan remains an asset of your estate until repaid. If you later choose to forgive the loan, that becomes a gift — starting a new seven-year clock for IHT.

4. Using a Trust

If your child is under 18, they cannot own property in their own name. In this case, it is usually held in a bare trust until they reach adulthood.

A bare trust:

• Gives the child the right to the property at 18
• Is relatively simple but offers little long-term protection

For more control, consider a discretionary trust. Trustees (usually the parents) retain legal control over the property, and:

• The child can live in the property
• The property is not directly owned by the child
• The asset does not form part of the child’s estate

Parents can each contribute up to £325,000 (the IHT nil rate band), for a combined total of £650,000 into a trust without an immediate IHT charge, assuming no other gifts in the last seven years.

If the property value exceeds this, the excess could be:

• Taxed at 20% on entry (immediate IHT charge), and
• Subject to a 10-year IHT charge at up to 6% on the value within the trust

A loan from the parents to the trust can help fund the excess if structured properly.

Important: If the settlor (parent) retains any benefit from the trust property (e.g., lives in it), it remains in their estate for IHT.

5. Buying Property via a Company

Buying residential property through a limited company has become less attractive in recent years — particularly for homes costing over £500,000.

Drawbacks include:

• 15% SDLT surcharge on properties over £500,000 (unless let commercially)
• Annual ATED (Annual Tax on Enveloped Dwellings) charge from £4,400 to £287,500, depending on value
• Corporation tax on gains made at sale

If the property is sold by selling shares in the company rather than the property itself, CGT may be deferred, but it involves complex valuations and professional structuring.

Generally, company purchases are only tax-efficient if:

• The property is to be rented out, and
• Profits are reinvested rather than extracted

For helping children, this is rarely the best route unless part of a broader investment strategy.

Final Thoughts: Planning, Protection, and Professional Advice

There are many ways to help your children onto the property ladder — and with the right planning, you can do so in a way that is financially secure and tax efficient.

Whether you choose to gift, loan, or trust, each route comes with its own tax consequences and legal considerations.

At Merranti Accounting, we regularly advise families on:

• Property gifting strategies
• Tax-efficient funding
• Estate planning
• Trusts and inheritance structures

Before making a move, make sure your generosity doesn’t cost more than it needs to. We’re here to help you protect your family’s future — while keeping your own plans on track

Looking for expert property tax and construction accounting advice? Visit our Property Services homepage for tailored support.