How to gift and accept money for a house deposit

Key takeaways

• A gifted deposit is a no‑strings financial gift, usually from a family member, used to boost or fully fund a homebuyer’s deposit.

• Lenders require a gifted‑deposit letter confirming the money is a genuine gift, the donor is financially solvent, and no stake in the property is expected in return.

• Gifted deposits can massively help first-time buyers, but they come with extra paperwork and potential inheritance tax considerations.

• There’s no limit on how much can be gifted, but lenders may scrutinise large gifts or gifts from non‑family members more closely.

What is a gifted deposit?

A gifted deposit is money given by an individual – usually a family member – to a homebuyer to use as a down payment on a property. It could be used for the whole deposit or just a part of it. The money isn’t a loan, meaning that a gifted deposit is given with the understanding that the money doesn’t need to be repaid. The person who is gifting the deposit will not be given any stake in the property in return. For example, their name will not appear on the deeds or the mortgage.

How does a gifted deposit work?

With a gifted deposit, the donor gives money to the home-buyer to help purchase the property. This usually pays some or all of the cash deposit. There will be some paperwork involved to make sure the transaction is legal. The typical process is as follows:

1. Agree with your donor (e.g. a parent or close family member) the amount that they are prepared to give you towards the overall deposit.

2. Add this amount to any savings you already have and make up your full deposit for the property purchase.

3. When agreeing the mortgage, provide a gifted-deposit letter or fill in the lender’s gifted-deposit form to show the funds are a gift and not a loan. It will explain where the money comes from and that there is no expectation of repayment. Lenders’ criteria for accepting gifted deposits can differ, so speak to your solicitor, mortgage broker, or lender directly.

4. Once the lender accepts the gifted deposit, the money can be transferred and the purchase completed.

What is a gifted-deposit letter?

A gifted-deposit letter is written proof that your deposit is a gift and not a loan. It certifies who and where the money is coming from, that they can afford the gift, and that the donor won’t demand repayment nor a stake in the property.

Banks and building societies usually have a template gifted-deposit declaration form that can be filled out. Smaller lenders, however, may request a certified letter.

The letter will need to be signed and dated by the gift giver and signed by a witness. It should include the following information:

• The name of the person receiving the gift

• The relationship between you both

• The sum of the gift

• Confirmation there is no expectation of repayment

• Confirmation there is no requirement for the donor to receive any stake in the property

• The donor is financially solvent

The donor will also need to provide some personal documents. These include photo ID, proof of address, and bank statement to comply with anti-money laundering regulations. Your solicitor will also request these documents during the process.

Who can gift a deposit for a mortgage?

A gifted deposit usually comes from parents or grandparents. Although, in theory, anyone could gift a deposit for a mortgage, some lenders have more specific criteria.

For example, some are more wary if the deposit comes from a friend or more distant family member. In these cases, the lender may want to carry out more checks, which could slow down the process.

What are the pros and cons of a gifted deposit?

Advantages

• Allows the homebuyer to get on the property ladder sooner, which they may not have been able to do without the cash gift

• Helps build a bigger deposit, so that the buyer needs to borrow less on a mortgage. Plus, with a lower

  loan-to-value

  (LTV) ratio, the borrower should be able to get a lower mortgage rate

• The gifted deposit may be given tax-free

• Once the gift is made there is no legal financial tie between the two parties. So, the donor can’t expect the money back

Disadvantages

• Extra paperwork – gift letters, ID checks, source-of-funds evidence

• Receiving a gifted deposit from family or friends could be problematic if the buyer falls out with the donor or the donor runs into financial difficulty in the future. That said, if the correct legal paperwork is completed, the donor cannot claim the money back

• If the donor passes away within seven years, the gifted deposit could be subject to inheritance tax

Are there any tax implications of a gifted deposit?

In the UK, a gifted deposit isn’t taxed when given, but it can fall under inheritance tax rules. If the giver dies within 7 years, it may count toward their estate and potentially create a tax liability if their estate is worth more than £325,000.

You can give away £3,000 tax-free gift allowance each year, without it being added back into your estate for IHT purposes. This is known as your annual exemption.

If a parent were to give their child £3,000 each year over several years and the money was eventually used for all or part of a deposit, it wouldn’t need to be declared to the mortgage lender as a gifted deposit. Neither would it be subject to IHT.

Is there a limit on how much can be gifted?

Unless a lender stipulates otherwise, there is no limit on the size of a gifted deposit you can receive. Again, though, it’s worth keeping in mind that the gift could be subject to inheritance tax if the donor dies within seven years.

Very large gifts might trigger anti-money-laundering checks.

Can I add any savings to my gifted deposit?

Yes, you can combine your own savings with a gifted deposit to reach the required mortgage deposit.

Lenders will need to see:

• The gift is genuine (gift letter for the gifted portion)

• Your savings are traceable (bank statements)

In fact, the bigger the deposit you put down, the better mortgage rates you will be offered. Not only that, but you’re also likely to have access to a wider range of mortgage deals. So, adding any savings to the money you’ve been gifted could be a favourable way to build up your deposit and find the right mortgage for your needs.

What is a ‘declaration of trust’?

A ‘declaration of trust’ is a document that allows you to protect the money you’ve been gifted. Generally, this can be sorted by your conveyancing solicitor. For example, if you buy a property with a partner or close friend but things end up going sour, a declaration of trust will protect your interests when it comes to your gifted deposit. In fact, this document indicates that the money has been gifted to you specifically, as opposed to both you and your partner (or close friend). So, should you and your partner part ways, you can be safe in the knowledge that the gifted money you’ve put down will always and only be yours.

Still wondering if you need one? Our dedicated guide explains what is and why you might need a declaration of trust.

Can I return a gifted deposit?

Whilst the nature of the gifted deposit means that it does not need to be repaid, in the event that you would like to return it to the donor, this can happen without any problems at all.

What are the alternatives to a gifted deposit?

Lending the money

This could be an interest-free loan from a family member. However, it should be declared to mortgage lenders who may treat it in the same way as they would a personal loan. So, it will impact your ability to afford the mortgage.

Mortgage guarantor

You could agree that a parent (or grandparent) will act as your mortgage guarantor who can ‘guarantee’ your mortgage should you fall into financial difficulties and be unable to pay. Guarantors need to think carefully about this decision and ideally get independent legal advice. In fact, they need to ensure they can afford the repayments, as this is a big commitment.

Lifetime ISA

This is a tax-efficient government scheme to help people save for their first property, with bonuses paid on savings. If the lifetime ISA is not used towards a first-home purchase, the cash can be used in retirement.

Joint mortgage

You could buy a home with a partner, friend, or even more than one friend. This can help your purchasing power because the earnings of both parties (for a joint mortgage) will be taken into consideration by the lender. Many lenders will lend to more than two people on the same mortgage. However, different terms and conditions will apply, and you’ll also need to get legal advice. Always be confident you are happy to be financially linked to the other people in the mortgage.

Compare mortgages with MoneySuperMarket

Once you have your deposit in place, comparing mortgages with MoneySuperMarket is straightforward. You can search for a fixed-rate, a tracker, or a discounted-rate mortgage. We’ll ask you a few questions about your finances and the value of the property you’re looking to buy. Then, you’ll be able to compare mortgage quotes from our panel of leading UK lenders. You’ll be able to see the results, including the initial interest rate and monthly mortgage repayments. You’ll also see any fees you’ll be asked to pay for each mortgage deal.

Your home is at risk if you do not keep up with the repayments on your mortgage.