Financial Markets Authority data shows that more than 50,000 people withdrew money from KiwiSaver for a first-home purchase in the year to March. While KiwiSaver has made it easier for people to build a deposit, parental assistance remains important for some buyers.
The way parents provide that assistance appears to be changing, and parents are increasingly providing a lump sum that can be used towards the deposit.
Parents giving money to an adult child may seem straightforward, but it is important to understand the financial consequences first. Using savings and other financial assets can affect retirement plans and future borrowing capacity.
What This Means for Individuals, Investors or Small Business Owners
Parents should consider whether the money is intended as a gift or a loan. Clearly documenting the arrangement can help avoid misunderstandings. First-home buyers receiving financial assistance need to understand the total cost of buying a property. Mortgage repayments and other expenses need to be considered alongside the deposit.
Parents considering releasing equity from their home should also understand that the additional borrowing remains their responsibility.
Any Potential Tax, Record-Keeping or Compliance Considerations
Anyone providing or receiving a substantial amount of money should keep clear records showing details of the amount transferred and whether it is a gift or a loan. The treatment of loans or transactions involving property can have tax consequences.
Practical Actions Readers May Wish to Discuss with Their Accountant
Families may therefore benefit from discussing arrangements with their accountant. Questions could include whether the proposed gift or loan has tax implications, and whether the loan could affect the parent’s financial position.
First-home buyers can also ask about the financial records they should retain for the property purchase and any future tax obligations.
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Disclaimer:The information in this article is general in nature and does not constitute financial, investment, taxation, legal or accounting advice. Readers should obtain professional advice relevant to their individual circumstances before acting on any information contained in this publication.
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