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Gifted Deposit - 3 things you must do when gifting a deposit

9 min read
The majority of first time buyers get a gifted deposit to support their home purchase. When gifting money for a house deposit there is a mandatory process to follow:

    Gifted deposit declaration. A gifted deposit letter completed by the parties gifting the money. It needs to be in a specific format and you must report the gift to your mortgage lender (even if it is already in your bank account).

You should also consider the Inheritance Tax implications and the risk of voiding a property sale if the gifter is made bankrupt in the next 5 years. Find out more and download a free template gift letter acceptable by all mortgage lenders.

Suitable for all purchase transactions.

    What is a Gifted deposit declaration?
gifting money for house deposit
Your solicitor will require a letter from you confirming that the money you are providing is a gift and that you have no rights over the property. A signed letter to your child should suffice and a copy of this should be supplied to their conveyancing solicitor.

The process of proving a gift is incredibly important as it evidences that the money no longer belongs to the party who has given the money and as such there can be no future claim to a beneficial interest or right to the property.

The clock will also start ticking on the gift rules relating to Inheritance Tax and Insolvency from the date the gift letter is signed. If you are gifting your whole property to family then the process is different and you should read - 4 ways to gift your property to children

We specialise in handling gift cases so if you need a quote for your conveyancing then please get in contact by calling 0333 344 3234 (local call charges apply) or emailing and we will provide you a fixed fee quote backed by a No Sale No Fee guarantee.

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    How do you prove your ID?

Your lawyer needs to get ID (identification) from whoever is gifting the deposit. This is to meet with their internal AML (Anti-Money Laundering) procedures and these vary considerably from solicitors to solicitors. To find out on what ID is required please read the following – What ID does your solicitor need?

Photo ID
Proof of Address
(a minimum of 2 are required)
  • Passport (this is the best one to provide); or
  • Driving Licence
  • Bank statement (this is the best one to provide - especially if this is where the money is being held)
  • Utility bill (gas,  electricity, council tax)
  • Driving Licence
  • HMRC letter

Whether your solicitors will accept originals, certified copies, non-certified copies or even a face to face visit depends on which solicitors you are using. Speak to your solicitors early on to make sure you know exactly what they need in order to receive the deposit.

Your may need to repay the gift if you die or become bankrupt
Inheritance Tax Rules
Where you die within 7 years of gifting money and your estate is large enough to attract IHT then the gift is taxed on a sliding scale known as ‘taper relief’:

Years between gift and death
Tax paid
(Gift x % = IHT payable)
less than 3
3 to 4
4 to 5
5 to 6
6 to 7
7 or more

Insolvency Rules
Should the gifter become bankrupt within 5 years of giving the gift then the house purchase could be revoked and the proceeds used to pay the debts of the gifter. Read more here about - The rules of insolvency for gifts and Insolvency Indemnity Insurance.

    How do you prove the source of funds?
Gifted Deposit Declaration
Another part of the Anti-Money Laundering checks your solicitors have to do is prove they know where the funds came from. For most it’ll be from a sale of an expensive asset (normally a house), a pension draw down or sale of shares; all of these are easy to prove with copies of the relevant documents showing where the large sum of money has come from.

What is harder to prove is when funds have been accrued from earnings over a long period of time or has come from multiple sources. Both of these sources will need to be explained in detail to satisfy the solicitor and to meet with their AML procedures. Once again, these procedures vary considerably from solicitors to solicitors, however most should be satisfied if you can properly evidence where the money has come from.

For money accrued from savings you should provide bank statements showing how the money has been accruing over the last 6 to 12 months within your bank account.

The more complex it is to answer questions about where your money has come from, the more detail you will need to provide to your solicitor to satisfy their AML checks. The best advice is to be upfront and provide more information rather than less.

To read our comprehensive article on proof of funds click here - How to prove source of funds

Some solicitors charge an additional fee for handling the work for a gift

You should speak to your solicitor at the outset to make sure that the gift work is included within your solicitors' original quote. The cost for this extra work varies from £50 to £100 depending on your solicitor, however we include this within our fixed fee - click to get a quote - Fixed Fee Conveyancing Quote or call 0333 344 3234 (local call charges apply).

Frequently Asked Questions

What is different about a Nationwide gifted deposit?

Nationwide Building Society have a set process for handling the declaring the deposit as a gift. If any money used to fund your deposit was a gift and is £10,000 or more then you'll need to complete a form. You can download the gift form here - Nationwide - Source of Deposit

What is different about a gifted deposit mortgage?

The mortgage product itself does not change because you are getting a mortgage, however there is a requirement for you to make a gifted deposit declaration during the mortgage application. The mortgage lender will then:

  • agree to the gift and make a note of this in the mortgage offer;
  • request further information about the party gifting the deposit; or
  • not agree to the mortgage.

Can you get a gifted deposit from a friend?

The most common relationship with someone gifting money for house deposit is a parent to a child as there is a presumption that the money will be a gift. The challenge with money given by a friend is that there is a presumption the money is to be repaid. Some mortgage lenders won't agree to a gift from a friend so make sure to inform them during your mortgage application.

Mortgage it a loan or is it a gift?

When a parent gives money to their child to fund the mortgage deposit it is either a loan or a gift. Read more on the difference here - Gifted Deposit? Or is it a loan from your parents?. If the deposit is a loan then it needs to be declared as such to the mortgage lender and agreed within the mortgage offer. Most mortgage lenders will agree to a loan from parents as long as it is a second charge.

If your parents don't want to state it is a loan then a Nationwide gifted deposit can be repaid to your parents on sale of the property. This is called a repayable gift, however not all mortgage lenders allow this.

Why does the mortgage lender need a gift letter?

The problem for mortgage lenders is that they need to know whether the money paid by the third party is a:

  • gift - this means it belongs to the buyers of the property.
  • loan - this means the money is repayable at some point in the future. Loans can involve various terms including typically how interest is to be calculated and added, whether sums are repayable on sale or during the term of ownership etc.
  • beneficial interest - this means the third party has an interest in land and could stop the mortgage lender's ability to force a sale in the future in the event of a repossession..

The objective of the mortgage lender is to protect their charge until it is settled in full when the mortgage is paid off or when the property is sold. By a third party having a loan or a beneficial interest, this could affect their ability to repossess.This is why if you are obtaining a gifted deposit mortgage with the support of a deposit from a third party, the mortgage lender will need them to complete a gifted letter. The wording for this in the gifted letter is as follows:

"I declare that the gift is unconditional, non-repayable and does not give us any rights over the property and will not prejudice the security of their Mortgage Company, [NAME OF MORTGAGE LENDER]"

Have you told your mortgage lender about the gift?
Any gift must be be reported to your mortgage lender during your mortgage application. If you fail to do this and your solicitor receives your mortgage offer and it doesn't state you are getting a gift, then your solicitor has to inform your mortgage lender that you are getting a gift. Mortgage lenders will then either amend their mortgage offer (can take 1 to 2 weeks to come back) or rescind it.

Halifax, Nationwide, Santander and all other high street banks all require gifts to be reported to them.

What if the money is already in their account?
A gift is a gift whether it was transferred, today, yesterday or 2 years ago. If the money was gifted to you in the past then you'll need to complete the gift procedure.

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