The Bank of Mum and Dad: the Good, the Bad and the Ugly

For many families, helping children or grandchildren onto the property ladder has become almost a rite of passage. With rising house prices and tougher mortgage criteria, the “Bank of Mum and Dad” is now one of the UK’s biggest informal lenders.

When done properly, this kind of support can be hugely positive. When done badly, it can store up serious tax problems, family disputes and unexpected financial loss.

At Solomons Solicitors, we regularly see both sides of this — the arrangements that work well, and the ones that unravel years later. The difference is rarely intention. It is almost always planning.

So let’s look at the good, the bad and the ugly.

The good: helping family, done properly

At its best, family financial support can:

1. Help children buy a first home sooner
2. Reduce borrowing and long‑term mortgage costs
3. Allow parents to see their wealth put to good use during their lifetime
4. Form part of a wider estate and inheritance tax planning strategy

There are sensible, established ways to structure this help, including:

1. Outright gifts, properly recorded
2. Loans, with clear repayment terms
3. Declarations of Trust, where parents retain a defined interest
4. Trust‑based arrangements, where appropriate

When advice is taken early, these arrangements can be aligned with inheritance tax planning, asset protection, future care considerations, and the child’s own relationship or marital position.

This is where the Bank of Mum and Dad genuinely works.

The bad: informal arrangements and false assumptions

Problems often start because families assume:

“We trust each other — we don’t need paperwork.”

Some of the most common issues we see include:

1. Money described as a “loan” with no loan agreement
2. Gifts made without understanding the seven‑year inheritance tax rule
3. Parents contributing to a purchase but not being named on the title
4. No clarity about what happens if the property is sold, refinanced or there is a separation

From a legal and tax perspective, intentions are not enough. HMRC and the courts look at evidence. Without clear documentation, money can easily be treated in a way the family never expected.

The ugly: when things go wrong

This is the part nobody likes to think about — but it’s the part we deal with most often.

Things can become very ugly when:

1. A child separates or divorces and the family contribution is treated as a joint asset
2. A parent dies and other beneficiaries challenge what was “meant” to happen
3. A loan is forgotten until an estate is being administered
4. Care fees or insolvency issues arise and money is no longer protected
5. HMRC challenge the arrangement during probate or an inheritance tax review

By this stage, families are often shocked to discover how limited their options are. Once a problem has crystallised, it is usually far more expensive — and sometimes impossible — to fix.

The inheritance tax trap many families miss

One of the most overlooked aspects of helping family financially is inheritance tax.

Parents often assume that:

1. money given away is automatically outside their estate, or
2. informal loans will simply be “taken into account later”.

Neither assumption is safe.

Without proper advice and documentation:

1. gifts may still fall within the estate for inheritance tax purposes
2. loans may increase the taxable value of an estate rather than reduce it
3. poorly structured arrangements can undo years of careful planning

Used properly, family support can form part of a sensible inheritance tax strategy. Used casually, it can create unexpected tax liabilities for the very people parents were trying to help.

This is where joined‑up advice matters.

Why professional advice makes all the difference

The value of professional advice isn’t just in drafting documents. It’s in:

1. asking the right questions at the outset
2. exploring “what if” scenarios before they arise
3. ensuring property, tax and trust law all align
4. protecting family relationships as well as finances

At Solomons Solicitors, we help families support loved ones without creating unintended consequences. Every arrangement is tailored — because no two families, and no two estates, are the same.

A sharp reality check

Good intentions do not prevent disputes. Trust does not replace evidence. And fixing mistakes later is almost always harder — and more expensive — than getting it right first time.

Many of the problems we see arise not because families did the wrong thing deliberately, but because no one paused to ask the right questions at the outset.

What comes next

In our next blog, we will look at the most common mistakes families make when acting as the Bank of Mum and Dad — based on what we see day to day when things go wrong.

If you are already helping family financially, or thinking about doing so, it is worth understanding where others have stumbled, and how those issues could have been avoided.

Thinking of helping family financially?

Before transferring funds, signing documents or making assumptions about tax, it is worth taking advice.

A short conversation at the outset can prevent years of difficulty later.

If you are considering acting as the Bank of Mum and Dad, we can help you do it clearly, safely and with confidence.

👉 Contact Solomons Solicitors to discuss how best to protect your family, your assets and your legacy.