Gifted Deposit

23/03/2020
The majority of first time buyers get a gifted deposit to support their home purchase. When gifting money for house deposit there is a set process to follow:

    1
    Gifted deposit declaration this is a gifted deposit letter completed by the parties giving the gift and is needed in a specific format if you are getting a gifted deposit mortgage.
    3
    Source of funds proof of where the gift came from.

We explain below the gift process and we include tips regarding the implications of Inheritance Tax and Bankruptcy; on how to gift money and get it paid back on sale; and provide a template letter.

Download our FREE Gifted Deposit Letter. Suitable for all purchase transactions.

    1
    What is a Gifted deposit declaration?
Gifted 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 reason this is so important, especially if your child is getting a mortgage, is that your solicitor needs to prove that you own no interest in the property and you are giving the money, never expecting it to come back. In fact, mortgage lenders may still refuse to lend your child a mortgage even though the money given is a gift simply because of the risks around the potential for parents to say that the money was in fact a loan and not a gift. You should speak to your chosen mortgage lender to see if they are happy for you to receive a gift deposit.

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 help@samconveyancing.co.uk and we will provide you a fixed fee quote backed by a No Sale No Fee guarantee.

Gifted Deposit Conveyancing Solicitors

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Download a Gifted Deposit Letter?

Click on either of the following to get your FREE Template
Approved for conveyancing-related gifting purposes by Solicitors - mortgage lender compliant



    2
    What ID is needed from those gifting?

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 children may need to repay the gifted money if you die or become bankrupt
a) if the person gifting dies within 7 years and their estate is liable for inheritance tax; or
b) if the person gifting becomes bankrupt within the next 5 years - Read rules of insolvency and gifts


    3
    How to confirm proof of funds (where the gift came from)?
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 gifted deposit

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).

Gifted Deposit Checklist

  • Get a letter confirming the money is a gift and not a loan. You can download a template letter: 
  • Get ID from the people gifting;
  • Get proof of funds from the people gifting; and
  • (if applicable) Inform your mortgage lender: make sure your mortgage lender knows you are getting a gift.
Send all of your evidence in the original format to your solicitor - scanned copies are great to confirm you have got the information, however originals will always be required by your solicitor.


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 gifted deposit 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 gifted deposit 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 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 gifted deposit from friend so make sure to inform them during your mortgage application.

Mortgage deposit loan from parents or is it a gifted deposit?

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 gifted deposit 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 deposit letter. The wording for this in the gifted deposit letter is as follows:

"I declare that the gifted deposit 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.

Still need help with a gifted deposit?

The simplest way to approach the process of a gifted deposit is to follow the 3-step process above and do it right from the word go. You should also inform your solicitor as soon as you instruct them so that they know you have a gifted deposit and will need to inform the mortgage lender (if there Is one).

Gifting deposits are common practice on most of our first time buyers' property purchases so please feel free to call us on 0333 344 3234 (local call charges apply) if you need any help.

If you want to find out more about how to deposit a gift or have any queries regarding any of points above then email us at help@samconveyancing.co.uk.

For individual cases where you have a problem with a gifted deposit and you are already working with a solicitor you should direct your question to them as it'll be their decision as to what information they will need to satisfy their own individual AML procedures.

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