Gifts vs Loans from Parents: Safeguarding the “Bank of Mum and Dad”

With house prices in New Zealand out of reach for many and mortgage lending criteria tightening, many young New Zealanders rely on their parents to help them onto the property ladder. The so-called “Bank of Mum and Dad” is now estimated to be one of the country’s biggest lenders.

But when money flows from parents to children, one question often comes back to haunt families: was it a gift, or was it a loan?

The answer to that question is hugely significant, not just for relationships within the family, but also for relationship property division, rest-home subsidy eligibility, inheritance, and financial security, among other things.

Why the Distinction Between a Gift or Loan Matters

Relationship property claims: If a child’s relationship ends, whether money from parents is treated as a gift or a loan can affect whether it is shared with a partner under the Property (Relationships) Act 1976.

Estate fairness: Parents may want the financial assistance they provide to one child “counted” against future inheritances to ensure even-handedness between siblings. If intentions are unclear, disputes can arise after death, particularly if what is left in the estate will see the other siblings walk away with less than what the assisted sibling has received.

Financial protection: Parents need certainty to protect their own retirement resources. Unclear arrangements risk them being left out of pocket, particularly if their resources are modest, as “gifting” such a large sum could impact their rest home subsidy eligibility.

What the Courts Have Said

1. XS v HS [2025] NZDT 101– No proof, no loan!

A father sought repayment of $5,000 advanced to his daughter for travel. He said it was a loan, she said it was a gift. With no loan agreement, no clear repayment terms, and only vague references in bank transfers, the Disputes Tribunal found no enforceable loan. The claim was dismissed.

Key takeaway: In parent-child contexts, there is no presumption that money is a loan. Without written evidence that the sums were a loan and there was an intention to create legal obligations, repayment can’t be enforced, and it will be treated as a gift.

2. Linton v Millar [2015] NZFC 2048 – Presumption of gift rebutted

Here, a couple received $54,000 from the wife’s parents towards the purchase of their Auckland home. The husband argued it was a gift to “help them climb the property ladder.” The parents insisted it was a loan, consistent with previous advances that were repaid. The Family Court agreed: the money was a loan, repayable on sale of the property.

Key takeaway: Even though the law presumes a parent’s advance is a gift (the “presumption of advancement”), that presumption can be rebutted by clear evidence of an intention to lend.

These cases highlight a simple truth: clarity up front prevents disputes later.

What you can do to make sure your intentions are clear

Practical steps families can take when money is passing from a parent to child include:

1. Put it in writing. A loan agreement or deed of acknowledgement of debt which sets out repayment obligations can displace the presumption of gifting.

2. Consider security. Registering a mortgage or caveat can protect a parent’s interest if they loan money to a child for the purchase of a property and the property is later sold.

3. Enter into formal gifting documents. If parents genuinely intend to give the money outright, a deed of gift can avoid arguments later.

4. Consider relationship property agreements. Children in relationships can enter a contracting-out agreement to ensure any financial assistance from their parents stays with them, rather than benefiting their partner.

5. Align any loan or gift with estate planning. Parents should update their wills to reflect whether advances made to children are gifts or loans, and whether they are to be repaid or deducted from inheritances.

Final Word

As the “Bank of Mum and Dad” grows in importance, so too do the legal risks. Cases like XS v HS and Linton v Millar demonstrate how different outcomes can arise depending on whether there is clear evidence of intention.

The best safeguard for families? Put it in writing. Seeking advice from your lawyer before handing over the money can save costly and painful litigation later.

If you are thinking of loaning or gifting money to your children, our experienced team of property lawyers at McMillan&Co. are happy to assist you. We can ensure that you are fully advised of the possible ramifications prior to any money changing hands and can draft documents necessary to give effect to your intentions.

Emily Robertson, Senior Solicitor
emily@mcmillanco.nz