For many people in England and Wales, saving for a deposit is the biggest hurdle to buying a home. Rising property prices and the cost of living often make it difficult for first-time buyers to step onto the property ladder without help. One common way that families provide support is through a gifted deposit. But what is a gifted deposit, how does it work, and what are the legal and tax implications?
A gifted house deposit is money given to a homebuyer, usually by a parent, grandparent, or close relative, to help them purchase a property. Unlike a loan, it is provided with no expectation of repayment and the person giving the money does not gain any legal interest or stake in the property.
Mortgage lenders and conveyancing solicitors will require confirmation that the funds are a genuine gift. This is often done through a signed declaration and proof of the funds source.
Gifted deposits are becoming increasingly common, particularly among first-time buyers who may struggle to save enough for a deposit on their own.
What Counts as a Gifted Deposit?
A gifted deposit is money given to a homebuyer by a family member, friend, or sometimes even an employer, with the specific purpose of contributing towards the deposit on a property purchase. The crucial point is that the money is a gift, not a loan. This means that the person providing the funds has no expectations and will not hold any legal interest in the property unless agreed separately.
Typically, gifted deposits come from parents or grandparents helping younger relatives, but they can also come from siblings, partners, or other close family members.
Some mortgage lenders may be cautious about accepting gifts from friends or distant relatives, so it is important to check lender requirements at the outset.
Why do Mortgage Lenders Care about Gifted Deposits?
When applying for a mortgage deal, lenders want to be sure that the buyer can afford their repayments and that the deposit is free of future financial claims. If a deposit is actually a loan disguised as a gift, this could affect affordability assessments and the lender’s security in the property.
To avoid this risk, lenders usually require the person providing the gift (often referred to as the “donor”) to sign a declaration or gifted deposit letter. This document confirms that the money is an outright gift, that the donor does not expect repayment, and that they will not take an interest in the property. Your conveyancing solicitor will also need to verify the source of funds to comply with anti-money laundering regulations.
Are There Any Tax Implications of a Gifted Deposit?
Gifted deposits are not subject to immediate tax. There is no gift tax in the UK, so the homebuyer will not have to pay anything when receiving the funds. However, there are potential inheritance tax implications.
In England and Wales, individuals can give away up to £3,000 per year as part of their annual gift allowance, free from inheritance tax. Larger gifts can also be made, but they may be classed as potentially exempt transfers.
This means that if the donor passes away within seven years of making the gift, the value of the deposit may be taken into account when calculating inheritance tax on their estate. If they survive for seven years or more, the gift becomes fully exempt.
It is therefore advisable for both the donor and the recipient to seek tax planning advice if large sums are involved.
Can a Gifted Deposit Be Part Loan, Part Gift?
Sometimes, a family member may wish to contribute to a deposit but still expects some of the money to be repaid. In this case, the contribution is not a pure gifted deposit. Instead, it becomes a loan or private mortgage.
This distinction is crucial as most banks and building societies will not accept a deposit funded by a loan from a third party as it affects the borrower’s affordability. If a combination of gift and loan is intended, it must be declared upfront and structured properly, often with the help of a solicitor.
What to Consider When Accepting a Gifted Deposit
Check lender requirements – Some lenders only accept gifted deposits from close relatives.
Provide evidence of funds – Bank statements and transfer records are usually required.
Ask donor to write and sign a gifted deposit letter – Confirming that the deposit is a genuine gift.
Seek legal advice – Both donor and recipient should seek legal advice to understand the implications.
Consider tax planning – Especially for larger gifts and inheritance tax purposes.
How can AFG Law Assist?
A gifted deposit can make a life-changing difference, helping buyers step onto the property ladder sooner than they might otherwise be able to. Provided it is structured correctly, with clear declarations and solicitor involvement, it is a straightforward way for families to pass on financial support.
While there are no immediate tax consequences, donors should be mindful of inheritance tax rules, and both parties should ensure that the arrangement is transparent to satisfy mortgage lenders. With the right legal and financial advice, a gifted deposit can be a smooth and stress-free part of the home-buying journey.
At AFG Law, our experienced conveyancing solicitors can guide you through every step of the process when using a gifted deposit. We will ensure all the necessary documentation is prepared, provide advice on lender requirements, and verify the source of funds in line with legal and regulatory obligations.
We handle all of the legal complexities to make the process as straightforward as possible, giving both the buyer and the donor peace of mind that everything is managed correctly.
To speak to a conveyancing solicitor in Bury, fill in our enquiry form or contact one of our expert team at residentialproperty@afglaw.co.uk or 0161 359 3880.