Helping with a house deposit can affect tax, care-fee assessments and family arrangements. Check the gift, your own financial needs and the paperwork before money changes hands.
TRAP #1: The 7-Year Rule (Inheritance Tax)
What most families think:
"We've gifted £80K to our daughter. That's our money, given freely. No tax consequences."
The Reality:
Some gifts are exempt immediately. A non-exempt outright gift may use the available nil-rate band if the giver dies within seven years. Earlier gifts, retained benefits and trust rules can change the result.
TRAP #2: Deprivation of Assets (Care Fees)
The Scenario:
Parents gift £100K to son. 3 years later, a parent needs residential care.
The Risk:
The Local Authority may view this as "Deprivation of Assets", deliberately reducing your wealth to avoid care fees. If they decide it was deliberate, they can treat the gift as if you still own it.
TRAP #3: Gift vs. Loan (Legal Disputes)
Without clear documentation, a "gift" can later be claimed as a loan by an executor (e.g., a sibling) or a divorcing spouse.
- Dispute: Parents pass away. Sibling argues the £50k you received was a loan to be repaid to the estate.
- Divorce: Your child divorces. Their ex-spouse claims half the house equity because the deposit wasn't protected as a "loan" or separate asset.
Next step: Ask the solicitor and mortgage lender what documents fit the intended gift or loan. Clear records can reduce uncertainty, but cannot guarantee that a later dispute will be prevented.