Paying back a gifted deposit

When someone is given money by a family member to fund the deposit to buy a home - and the money is not a loan - then it is a ‘gifted deposit’. The gift can cover the whole deposit amount or part of it. Buying a property with a gifted deposit has mortgage and tax implications, but our conveyancing solicitors can guide you through the process.

Who can make a gifted deposit?

Every mortgage lender has its own rules, and they will stipulate who is allowed to gift a deposit. Mortgage lenders will usually allow parents, grandparents and siblings to gift deposit money. More distant relatives such as uncles and aunts are rarely allowed.

It is very important to check a mortgage lender’s rules before you give or accept a gifted deposit towards a house.

Please also note that some mortgage companies will not release funds unless the donor (the person giving the gift) has received independent legal advice.

How should you protect a gifted deposit?

If you have received a gifted deposit, it is important to protect it. None of us can predict life’s twists and turns so it is advisable to consider all eventualities.

If you are buying a house with a partner and it will be partially funded with your parents’ money (or another family member’s money), it is worth thinking about what will happen if your relationship breaks down or one of you dies.

Our solicitors can draw up a Declaration of Trust to ensure you and your partner are clear how your property will be divided if the unexpected happens. This can provide both you and the donor of the gifted deposit with peace of mind.

What are the tax implications for gifted deposits?

Gifted deposits are not taxable unless the donor dies within 7 years of making the gift. In this case the money could be subject to Inheritance Tax.

Inheritance Tax will only be payable if the donor’s estate is worth over £325,000 including the deposit.

It is advisable for the donor to seek independent legal advice before they make the gift. This is likely to be a requirement of the mortgage lender anyway.

Does a gifted deposit mean extra solicitor checks?

If you are receiving a gifted deposit, it is very important to tell your solicitor. A gifted deposit involves extra solicitor’s checks.

Your solicitor will request a ‘gifted deposit letter’ from the donor and they will do the following:

  • Obtain proof of identity documents from the donor.
  • Verify the source of gift deposit funds.
  • Carry out anti-money laundering checks to comply with the Money Laundering Regulations 2017.
  • Carry out a bankruptcy search on the donor before exchange of contracts.

Your solicitor will also confirm with your mortgage lender that you have received a gifted deposit.

Can you borrow money from your family to buy a house instead?

Borrowing money from your family is another way to buy a house. However, a loan will need to be declared to the mortgage lender as it is classed as a debt. The loan may affect whether you can get a mortgage, or it may limit the number of mortgage deals open to you.

If you borrow money, it is a good idea to draw up a loan agreement. The agreement will set out how and when the money is to be repaid, what happens if the lender needs the money back, or if somebody dies. Although it is tempting to rely on trust, having a loan agreement in place can save disagreements later and keep family relationships harmonious.

Our solicitors can advise you what to include in a loan agreement. We can help you to consider different scenarios, so everybody’s interests are protected whatever happens in life.

Have a question or need some help?

Would you like legal advice about a mortgage gift?

If you are receiving a mortgage gift to buy a property, or you are a parent who wants to help their child onto the property ladder we are here to advise you.

Our solicitors can talk to you through the legal, financial and practical implications of a gifted deposit. We can guide you through all your options so you can make the best choices.

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