For many buyers, getting on the property ladder is only possible with help from parents or grandparents. Family contributions towards deposits are now so common that lenders have well established processes for dealing with them. What families often do not realise is that a gifted deposit touches several areas of law at once, from conveyancing to inheritance tax to what happens if a relationship later breaks down. A little planning at the outset protects everyone involved.
Gift or loan? Decide before the money moves
The first question is whether the money is a true gift or a loan the family expects to be repaid. The distinction matters enormously. Mortgage lenders will generally only accept a contribution that is a genuine gift with no strings attached, because a repayable loan affects the buyer’s affordability and the lender’s security. If the family intends the money to be repaid, perhaps when the property is eventually sold, that needs to be disclosed to the lender and documented properly. Calling a loan a gift to satisfy a lender is never the answer and can amount to mortgage fraud.
The gifted deposit letter
Where the contribution is a gift, the lender will usually require a signed gifted deposit letter. This confirms who is giving the money, their relationship to the buyer, the amount and crucially that the giver will have no interest in the property and no right to live there. The giver will also need to provide identification and evidence of where the funds came from, as solicitors and lenders must carry out anti money laundering checks on gifted funds just as they do on the buyer’s own money. Telling your conveyancer about a gifted deposit early in the transaction avoids delays later.
Inheritance tax and the seven year rule
A gifted deposit is a lifetime gift, which means it can have inheritance tax consequences for the person giving it. Most gifts fall out of account for inheritance tax purposes if the giver survives for seven years after making them. Everyone also has an annual gifting allowance and there are additional allowances for gifts made in consideration of marriage. For parents making substantial gifts, it is sensible to keep a clear record of what was given and when and to review your will and wider estate planning at the same time. If you are helping one child now, you may also want to think about how to treat other children fairly in your will.
Protecting the gift when a couple buys together
Particular care is needed when the money benefits a couple, for example where parents gift a deposit to their child who is buying with a partner. If the couple later separates, the contribution can become a point of real difficulty. Buying as tenants in common in unequal shares, recorded in a declaration of trust, allows the child’s larger contribution to be recognised from the start. Some families prefer to structure the contribution as a documented loan instead, precisely so that it stays within the family whatever happens. These are conversations worth having before completion, however awkward they feel, because they are far harder to resolve afterwards.
Speak to BSG Solicitors before the money changes hands
Our conveyancing and private client teams work together on gifted deposits every week, helping families across Lancaster, Preston and the surrounding areas to structure their generosity in the right way. Whether you are the buyer or the person providing the funds, we can prepare the necessary documentation, liaise with your lender and advise on the estate planning implications, all in plain English. Get in touch with our team today for an initial conversation.
