Buying a home is incredibly exciting, but the journey can sometimes feel overwhelming, particularly when it comes to saving for your deposit. Many people get help from family or friends in the form of a gifted deposit, especially first time buyers.
A gifted deposit can make it quicker and more affordable to get on the property ladder. If you’re going to receive a gifted deposit, understanding how they work is crucial for a smooth purchase. This article aims to answer some of the most frequently asked questions about them, helping you feel more confident and prepared as you take your next steps.
What is a gifted deposit?
A gifted deposit is a sum of money given to someone buying a property by someone else, usually a family member.
The aim of gifting funds to family or others is to contribute to the deposit when buying a property, making it more affordable. It’s a gift, not a loan, so you don’t have to pay it back.
A gifted deposit can be a contribution towards your wider deposit or make up the entire thing.
Who can gift a deposit?
Gifted deposits can technically come from anyone, although they are most often gifted by close family members like parents or grandparents.
Who can benefit from a gifted deposit?
Gifting funds to family or others is common, and any buyer can receive a gifted deposit. However, first time buyers are the most common beneficiaries, and help with a deposit can be a huge help when getting on the property ladder.
Why are gifted deposits so common for first time buyers?
Saving the money for a deposit is often the biggest challenge faced by first time buyers. House prices are high, so it can take years to save enough for a deposit, which starts from 5% of the property price but is more commonly 10% or more. A gifted deposit can significantly shorten the amount of time it takes to save.
Do I have to pay tax on a gifted deposit?
Gifted deposits are treated as gifts, not income, so you typically don’t have to pay income tax or any other tax on them.
Does the gift giver have to pay tax?
The gift giver doesn’t usually have to pay any taxes, such as Capital Gains Tax, on the gift. However, it’s possible for there to be Inheritance Tax implications if the giver passes away within seven years of making the gift. This is a complex area, so it’s a good idea to seek your own independent financial advice if it’s something you’re concerned about.
Do I need to tell my solicitor about my gifted deposit?
Yes, it’s crucial to tell your conveyancing solicitor about any gifted deposit. They need to ensure that the funds are properly documented and everything is legally sound, protecting both you and the person giving the gift.
What is a gifted deposit letter and what needs to be included?
If you receive a gifted deposit, your mortgage lender will probably ask you to provide proof that it’s a gift. This is typically done through a gifted deposit letter, also known as a gifted deposit declaration or deed of gift. It should include:
- The names and addresses of you and the person giving the gift
- How much they are gifting to you
- A clear statement that the money is a gift, not a loan
- Confirmation that the gift is unconditional (see below for more details on this)
- Signatures from both you and the gift giver
What happens if I don’t declare a gifted deposit?
You should never try to hide a gifted deposit. You should be upfront with your solicitor and mortgage lender; they are there to help you. There are some potentially serious consequences to not declaring your gifted deposit. For example:
- The lender may reject your mortgage application if they discover a gifted deposit that hasn’t been declared.
- Not declaring your gifted deposit to your mortgage lender could be considered mortgage fraud – a criminal offence with penalties including fines and imprisonment.
- Your conveyancing solicitor has a duty to report any suspicious behaviour. If they discover an undeclared gift, they may have to report this, leading to delays, complications, or even the total breakdown of the purchase.
What is an ‘unconditional gift’?
An unconditional gift means a gift given with no expectations. For example, the gift giver cannot ask for the money back or have any say in what you do with the property you buy with the money. In other words, it’s a straightforward gift with no strings attached.
Can a gifted deposit be conditional?
A gifted deposit shouldn’t be conditional. It’s meant to be given without expectation of repayment. While it is technically possible to gift funds for a deposit with conditions attached, conditional gifts are complicated and can create problems down the line. For example, a gift given on a condition like staying in a relationship can cause issues if you break up. If your gifted deposit has conditions attached, it’s strongly recommended to seek legal advice beforehand.
How does a gifted deposit affect my mortgage application?
Your mortgage lender must be made aware of your gifted deposit. They will want to know the source of the funds, including seeing the gifted deposit letter and evidence of the funds. This is because they need to be sure it’s a genuine gift and not a loan, as any undisclosed loans may impact your affordability of the mortgage.
Will the gift giver’s name be on the property deeds?
No, the gift giver’s name will not be on the property deeds. The only names on the property dees will be you and any co-owners, which does not include the gift giver unless they are buying the property with you and contributing to the purchase price as well as the deposit.
Are there any restrictions on how much can be gifted?
No, there is no minimum or maximum limit on how much can be gifted for a deposit. However, you should bear in mind that large gifts may be more scrutinised by your mortgage lender and could have potential Inheritance Tax implications.
Gifted deposits vs loans
It’s important to understand the difference between gifted deposits and loans. A gifted deposit doesn’t need to be repaid, and the person who gifted you the money has no interest in or legal rights to the property.
On the other hand, a loan comes with an expectation of repayment. If you receive money for your deposit that’s a loan disguised as a gift, it could cause serious problems with your mortgage, including legal implications down the line.
Yoi should always make sure that everything is properly documented and your solicitor knows the source of the funds, so they can complete the relevant checks and ensure your transaction goes smoothly.
Conclusion
Gifted deposits can make a huge difference for first time buyers, making home ownership a reality sooner than might be possible otherwise. However, it’s important to remember that gifted deposits can involve legal and financial considerations. Open communication with your mortgage lender and conveyancing solicitor is key, alongside being transparent about the source of your funds to use your gifted deposit effectively.
For specific legal advice on gifted deposits, or to get a conveyancing quote as you take your first step on the property ladder, get in touch with Setfords today and our expert conveyancing solicitors today.
What you can expect with Setfords
Ultimate flexibility: Our lawyers can tailor their schedules to meet your needs.
Nationwide coverage: with hundreds of consultant lawyers across the UK, we’ll connect you with the right expert.
Dedicated specialist legal partner: work directly with your chosen lawyer from start to finish.
Highly experienced: Setfords lawyers have an average of 20 years’ experience, so you can be assured you’re in safe hands.
Capacity-based allocation: our lawyers never take on more work than they can handle, so you get the focus and attention you deserve.
Contact our team
Location
Business Hours
