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Gifted Deposits
Who this page is for?
This page is for first-time buyers who want to know more about gifted deposits. Learn about who can give you a gifted deposit, how to declare the money to your lender and the structure of a gifted deposit letter.
What is a gifted deposit?
A gifted deposit is a cash gift you use to pay for some or all of a mortgage deposit. They are usually given by relatives or friends.
For example, a family member gifts you enough money to take your deposit from 5% to 10%. This can mean you’re able to borrow more and afford a more expensive home.
A gifted deposit must be a gift. It cannot be a loan and there must be no agreement to pay back the money. In fact, you’ll need to state in writing that you won’t have to pay this money back in the future. The gift giver can’t have any stake in the home, either.
1. Confirm the gift with a gifted deposit letter
You will need to provide your solicitor with a letter that confirms the deposit is a gift. The letter should lay out that the giver has no right to the property. This is known as a gifted deposit letter.
This letter proves that you won’t have to pay back the money given at a later date. Without this, you might not be able to use money that’s been given to pay for your deposit.
2. Get ID from the person gifting
Your solicitor may also need proof of identification from the person who’s gifting the money. This can vary, so be sure to get in touch and ask what they will need from you.
Typically, you will need:
- A photo ID such as a passport or driving license
- Two different proofs of address. This could be a:
- Driving license
- Utility or council bill
- Bank statement
- Letter from HMRC
3. Get proof of funds
Your solicitor needs to check where the funds have come from. This might be from the sale of a house or other asset, sale of shares or a pension. It may also be something they have inherited from another relative.
If the gift has come from a separate saving pot in your donor's name, it can be more complicated. Your donor may need to provide evidence of where the money has come from. This is to prove the funds meet Anti-Money Laundering Regulations.
Do you need to declare a gifted deposit?
You will need to declare any gifts you use for your deposit. A declaration should show that you are not expected to pay back the gift. If you have to pay back money, it becomes a loan, which may make it harder to be approved for a mortgage.
By signing a declaration, your donor states that they accept their gift does not give them rights over the property.
Who can give a gifted deposit?
You also need to declare who has given you the gift. There are some limits on who can gift a deposit, and lenders will need to check you meet their rules.
Most lenders prefer when your gifted deposit comes from a relative. This could be a parent, grandparent, or sibling. Other lenders may not accept gifted deposits at all, so you need to be upfront if you are using one.
What is a gifted deposit letter?
A gifted deposit letter is how you prove to a solicitor and lender that the money you’ve been given is a gift.
Each lender may need different things from your gifted deposit letter. Typically, they will need:
- Your name and address
- The name and address of the person who gave you the gift
- The relationship between you both
- The total amount of the gift
- Where the gift has come from
- Confirmation that you won't have to pay it back
- Confirmation that the donor will not have any stake in the property
- Proof that the donor is financially stable and unlikely to face bankruptcy
What are the tax implications of a gifted deposit?
If you get a gifted deposit from a parent or grandparent, it will not be affected by inheritance tax if they live for the next seven years.
If the donor does die within seven years, the money will become a Chargeable Transfer. In this case, you may need to pay inheritance tax.
You also have a £3,000 tax-free gift allowance each year. Any money you get under this limit will not be taxed.
Looking for another option?
Saving a deposit for your first home isn’t always easy. We’re always here to help you find the right mortgage. But did you know your family can now help you get onto the property ladder with our Lend a Hand mortgage.
You could lose your home if you don't keep up your mortgage repayments
The content on this page is for reference and does not constitute finance advice.
For impartial financial advice, we recommend government bodies like the Money Advice Service.