Do I have to pay tax on a gifted deposit?

You will not pay any immediate tax on a gifted deposit. However, if the parent who gifts you the money dies within 7 years, you might be liable to pay inheritance tax. If the gift was given 3 years prior to their death, inheritance tax must be paid at a rate of 40%. For gifts given between 3 and 7 years before their death, tax will be paid based on a taper relief scale. Taper relief is only applicable if the gift value goes over £325,000. If that is not the case, you will pay tax as follows: Taper Relief Scale Rate 3 to 4 years 32% 4 to 5 years 24% 5 to 6 years 16% 6 to 7 years 8%

Do you have to prove where your house deposit comes from?

Yes, your lender will ask you to prove where the deposit comes from. This is all part of the mortgage application process, as well as your lender's assessment of whether or not they should grant you the mortgage.

What happens if you dont declare gifted deposit?

Not declaring your gifted deposit could lead to you losing your mortgage offer. Your solicitor will check for gifted deposit or loan and they will inform your lender if you don't declare it.

Can you get a gift from anyone?

Mortgage lenders are more likely to accept a gift from parent to child. Fewer lenders allow Grandparents and even fewer brothers and sisters. The least accepted gift is from friends. The reason that parents are more commonly accepted as gift providers is because of their relationship with their children and the common acceptance that parents give money to their children. Any other person providing a gift, in the mortgage lender's eyes, is most likely going to expect to be be repaid at some point in the future.

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Gifted Deposit Or Loan From Your Parents?

by:

Andrew Boast

Last Updated: 19/08/2024

Read by:

8,378

8 min read

Whilst Borrowing money from family is common when buying property, you may think how the money is given doesn't matter because you are family. However, if you are getting a gifted deposit mortgage, then you'll need to be clear on who owns the money being used to buy the property. Your mortgage lender needs to know if the money is a gift or a loan.

The reason for this is simple, the lender wants to know if anyone else is going to have a claim over the title of the property that could effect them being repaid their mortgage debt.

If you are planning on paying back a gifted deposit then you need a Simple Loan Agreement or else as a parent, you could miss out on being repaid the gifted loan - read on to find out why.

Do mortgage lenders accept gifted deposits?

80% of first time buyers use a mortgage gift from friends or family to fund their home purchase. Mortgage companies have specific processes to follow for applications where there is a gift, however here are some points to consider:

Is it a mortgage gift or are you going to have to pay it back?
If it is gifted, what happens if you fall out with the person who gifted the money and wants it back?(read our top rated article - What to do when receiving a gifted deposit
If it is a loan, is you mortgage lender happy with this? What are the terms of the loan? Is there any interest to pay? When is the debt to be repaid?

Mortgage lenders do not want to have challenges from parents if they have to repossess and sell the property. In the mortgage lender's eye, they'll want to know they can repossess, sell the property and repay their loan without anyone else claiming there is money due to them.

If it is a gift, the mortgage lender will need a letter confirming this. If it is a loan then the mortgage lender needs to confirm they are happy for a 2nd charge to be registered against the property. Often mortgage lenders do not allow this, especially if it is a high loan to value mortgage.

How Do You Write a Gifted Deposit Letter?

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Paying back a gifted deposit

Some families give a gift with the understanding it is going to be repaid at some point in time in the future, however a gift is a gift and there is no legal recourse for being paid back a gift.

Issues can also arise where parents give a gift to their child, however the child is buying with their partner. It is advisable in these situations for the parties to get a Deed of Trust drafted to ensure if there is a breakup, the gift goes back to the child instead of being shared with the ex partner.

Is it a gift or a loan?

1

Gifted deposit

Gifted money, with no expectation of it being returned - In English Law, the presumption of advancement states that all money paid by a father to his children is made as a gift, unless otherwise stated. The law only looks at fathers in this way and it is assumed that if a mother pays money to her child, her child will pay it back unless stated otherwise.
Gifted Deposit Letter required - If the money is a gift then you'll need to provide a letter confirming this to your child's solicitor and mortgage lender. For gifts, you will need a Gifted Deposit Letter.

2

Loan deposit

Gifted money, with the expectation of it being returned - A loan can be provided to fund the deposit in circumstances where your parents want the money to be repaid.
Loan Agreement required - Because the money isn't a gifted deposit, you'll need to have an agreement clearly stating the terms of the loan. This should include:

Amount loaned
Time frame for when the loan is to be repaid
Amount of interest applied to the loan
Details of what happens if the loan isn't repaid or the contract is breached

In the event that the loan does have interest to be repaid, then there are additional points to be agreed as set out in the Consumer Credit Act. For most parents, they'll be satisfied for the loan to be repaid and not to benefit from any interest on the loan. We can help draft an agreement to set out the intentions between parents and child.

Enquire about a loan agreement

Is a loan to a child considered a gift?

No and be careful if this is your intention. Declaring to your mortgage lender that you are receiving a gift when it is actually a loan is mortgage fraud. There is however nothing to stop parents gifting money to their children and then for the children to gift the money back at some future date.

Your parents have no legal right to call upon the repayment of their gift and the children could choose not to repay the money because they have either fallen out with their parents, or they simply cannot afford to pay.

These kinds of unwritten agreements can cause arguments in families, especially if their are two children and only one is given the gift.

A gift to their child, not their partner

There can be circumstances when the intentions between parents and children can change, and one of the main contributing factors is marriage. Parents who are unhappy with your choice in life partner may not want to see their gift being shared with your new partner. Often, this can lead to parents seeking repayment of their gifted deposit.

This makes it even more important to have something in writing to state what the intentions were for the deposit when it was given. In circumstances where the money paid was a gift, a parent cannot make claim to it, however they can advise their child to protect their gift from their partner.

One solution is to enter into a Deed of Trust prior to making the purchase, which will clearly state the legal owner of the gift is the child, separate to their partner. Deed of trusts are very common for couples who joint own a property and want to protect the interests separately to each other until they get married.

If the relationship were to break down then on the sale or transfer of the property, the ownership of the gift would be shown as the child's money and as such the partner would not have a claim to it.

Do you need an agreement drafted?

For clients who want to agree terms with their children we provide a detailed shared ownership agreement that is tailored for this relationship. It can be drawn up either for setting terms for the repayment of a loan at set times, or for the protection of the gift given to your children.

We have a wide selection of agreements that can be used to handle this kind of arrangement.

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Written by: Andrew Boast

Andrew Boast FMAAT is a qualified accountant, conveyancing specialist and author with over 25 years of experience in the UK property sector. Since beginning his career in 2000 within established SRA and CLC-regulated conveyancing solicitor firms, Andrew has overseen the legal journeys of more than 75,000 clients.

He is the author of the property guide 'How to Buy a House Without Killing Anyone' and a frequent contributor to mainstream UK media on legislative updates, property law, first-time buyer guides, conveyancing best practices, and stamp duty changes. Andrew specialises in resolving complex title issues, property conflict disputes, and property tax options, streamlining the enquiry process to reduce transaction times and maintaining a client-friendly focus.

Reviewed by: Caragh Bailey

Caragh Bailey is a Lead Property Content Specialist at SAM Conveyancing, having joined the firm in 2020. With a portfolio of over 150 technical conveyancing, house survey and mortgage guides, she has become a primary authority on the end-to-end sale and purchase process.

Caragh specialises in complex legal workflows, including Help to Buy redemptions, equity transfers, shared ownership structures, trust deeds for tax planning, and joint ownership disputes. Her expertise extends to leasehold reform and RICS home surveys, where she provides clear, factual guidance on independent legal advice for specialist mortgage products and intricate ownership structures.

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