Parents need advice on how to act as Bank of Mum and Dad
More than three-quarters of parents aged 55 and over are confused about how to gift cash to their kids to buy a home. The Bank of Mum and Dad (BOMAD) lends around £6 billion every year to their offspring, financing more than one in four housing transactions and making it the ninth biggest lender in the UK.
However, research by independent equity release advisor Key shows that 76 percent of parents in the 55-plus age group find gifting rules complicated with 24 percent concerned they don’t have the financial nous to make the right decisions.
The study shows that parents think they need more help and guidance to do the right thing by their kids with 40 percent of those quizzed saying online help would benefit them. Almost half (46 percent) would like legal advice but are worried it would prove too expensive.
Tax incentives for gifting welcome
And 78 percent of over 55s say they’d welcome tax incentives for providing financial gifts to their children for major life events such as a first home purchase, paying university fees or clearing debt.
It’s not only the parents holding the purse strings who are also worried about gifting. Key quizzed 18-40-year-olds who live in rented accommodation about their expectations with almost half (46 percent) concerned that their parents don’t have enough financial knowledge to operate as the Bank of Mum and Dad.
And three-quarters (76 percent) say specific online information and guidance is needed for their folks.
Advice is key
Dean Mirfin, chief product officer at Key, said: “Collectively BOMAD is a major UK financial institution but one that needs advice and guidance so that parents feel empowered to make the right financial decisions for themselves and for the next generations.
“Older homeowners in the UK own as much as £1 trillion in housing wealth according to our estimates and are also likely to have generated significant pension wealth as well as other retirement savings.
“The challenge for parents wishing to lend or gift money is to decide which assets are the most appropriate and most tax-efficient for gifting. We believe advice is key.
“The over 55s are right to demand increased guidance and support, and it’s no surprise that the vast majority would support tax incentives providing the money is used for major life events, such as a first property purchase, university fees or debt repayment.
“At Key, we would support any initiatives that give clearer guidance to the Bank of Mum and Dad about the important intergenerational financial decisions.”
Kindly shared by Homeward Legal