Disclaimer:
The information on this website is for general guidance only and does not constitute financial or investment advice. Always do your own research and seek personalised advice from a qualified financial adviser or mortgage adviser before making financial decisions. All investments carry risk and past performance is not indicative of future results.
Key Takeaways
- Family support can be structured as loans or gifts.
- Loans or family contributions may need written terms that fit lender, ownership and family circumstances.
- Co-ownership can affect title, lender, consent and exit arrangements.
- Gifts may be simpler, but lenders and family members may still need clear records.
- Kāinga Ora recommends independent legal advice when family help is involved.
In Part 3 of the Legal Toolkit series, we highlight key differences between a loan from parents and a gift from parents (sometimes called the bank of Mum and Dad). Kāinga Ora recommends everyone involved seeks independent legal advice when family help includes gifts, loans or guarantees.
The Bank of Mum and Dad – Loans vs Gifts
There are various ways that monetary assistance from your parents towards the purchase of a property can be recorded and understood, depending on whether the help is a gift, a loan, a guarantee or an ownership arrangement. Common options to discuss with your lawyer and lender include:
Option 1: Deed of Acknowledgement of Debt
A deed or loan agreement can record that you owe a specified amount to your parents and when it is repayable, such as on sale of the property or another agreed trigger. Any security, mortgage or lender disclosure needs specific legal and lending advice.
Option 2: Co-ownership with Parents on Title
Co-owning the property with your parents means they may be registered on the record of title. This can affect lender requirements, who signs loan documents, who must consent to selling or refinancing, and what happens if someone cannot meet their obligations.
Option 3: Declaration of Trust
A declaration of trust may record that parents have a beneficial interest even if they are not recorded on the title. This is a specialist legal structure and should be checked against the lending, title, relationship-property and family circumstances before anyone relies on it.
Option 4: Gift as Early Inheritance
A gift can be recorded as an early inheritance or family contribution to help explain everyone's intentions, but documentation cannot guarantee there will be no future family disputes.
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The Simple Option: Gifting
Gifting money may be simpler than a loan, guarantee or co-ownership arrangement, but it still needs clear records. Kāinga Ora says a home loan provider may need confirmation that gifted money does not need to be repaid, and IRD says gifts can be made in New Zealand without gift duty. Tax, relationship-property, lender and family consequences can still depend on the circumstances.
Important: Kāinga Ora recommends everyone involved seeks independent legal advice when family is helping with gifts, loans or guarantees. Get the proposed structure clearly documented and explained so each person understands the lender, legal, tax and family implications before choosing an option.
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