For many buyers, especially first-time buyers in the UK, securing a deposit remains the biggest hurdle to homeownership. Gifted deposits offer a valuable pathway, allowing family and friends to help loved one’s step onto the property ladder. Understanding how gifted deposits work, what lenders require, and the legal considerations involved is essential for a smooth home-buying journey.
A recent survey from Legal and General found the following:
- Majority of recent or prospective ‘Bank of Family’ recipients said they would have to delay their home purchase without the generosity of family, and one in ten would not be able to buy at all.
- Gifting from parents and grandparents is set to soar with contributions predicted to hit £11.3bn by 2026.
What is a gifted deposit?
A gifted deposit is money given by family or close friends to help first-time buyers cover part or all of their home deposit. This gift is not a loan; there must be no expectation of repayment or any stake in the property by the giver.
Gifted deposits can significantly ease the challenge of saving for a deposit, which is typically at least 10% of the property price in the UK. According to L&G, gifts are estimated to support about 42% of homes purchased by buyers under 55.
Who Can Give a Gifted Deposit?
Close Family Members
Most lenders prefer gifted deposits to come from close family members such as parents, grandparents or siblings. This is the most commonly accepted source and typically faces fewer questions from mortgage providers.
Extended Family & Friends
Some lenders may accept gifts from extended family or close friends, but this varies significantly and must be confirmed with your mortgage adviser beforehand. Additional documentation may be required.
What documentation will be required for the application?
You will need to prepare documentation for the lender and solicitors to evidence the gifted deposit.
- Formal Gifted deposit Letter – The donor must provide a signed letter confirming the gift amount, that it is non-repayable, their relationship to the buyer, and that they have no legal interest in the property.
- Proof of Donor’s financial capacity – Evidence that the donor can afford the gift and is financially stable, typically through bank statements or proof of savings.
- Evidence of Funds Transfer – The buyer must provide bank statements showing the deposit has been received into their account, if the funds have been transferred already.
- Source of Funds Documentation – Proof of where the gifted funds originated to comply with anti-money laundering regulations, such as sale of assets or long-term savings.
Are there any tax rules for gifted deposits in the UK?
Gifted deposits are generally exempt from inheritance tax if the donor survives for seven years after giving the gift. This is known as the seven-year rule and applies to potentially exempt transfers. If the donor passes away within seven years, the gift may be subject to inheritance tax on a sliding scale, with full exemption only after the complete seven-year period. You should consult with a tax specialist on this to understand the implications.
Get in Touch with a Mortgage Broker
Whether you’re a first-time buyer using a gifted deposit to secure a mortgage, or a family member or friend offering financial help, it’s essential to understand how lenders assess gifted deposits and what documentation they require.
Contact Heath Mortgages to discuss your next steps today.