What is a gifted deposit?

fa-homeowners ["Mortgages Explained"]
A gifted deposit is a gift of money that is used to pay, or go towards paying, the deposit for your new home. It is usually given by generous relatives or the Bank of Mum and Dad. 

Can I used a gifted deposit to buy a home?

Saving up for a mortgage deposit can be the hardest part of buying your own home. A gifted deposit might help you some of the way to affording the lump sum you’ll need. 

Let’s say you have a 5% deposit. The mortgage deals that are available might be limited. If you’re gifted money and your deposit is now 10%, you might have more options.

The bigger your deposit, the smaller your loan to value (LTV) ratio. This can make it easier to be approved for a mortgage.

A bigger deposit can also mean being offered a lower interest rate. This is because you need to borrow less.

Do you need to declare a gifted deposit?

Yes, if you receive a gifted deposit, you will need to tell both your lender and your solicitor. 

You will need a declaration signed by your donor. This confirms that the money is a gift (it won’t need to be repaid).

How does a gifted deposit work?

Here’s how to receive a gifted deposit in three simple steps:
Ask your donor to write a gifted deposit letter. This should say they will not have a stake in the property and you don’t need to pay the money back.
Gather any documents requested by your solicitor and lender. This can include your donor’s proof of funds and identification. This can help them carry out Anti Money Laundering (AML) checks.
Share the letter and documents with your solicitor and lender.

How to write a gifted deposit letter

A gifted deposit letter is simple and only needs a few simple details. Your lender may be able to provide a template for you to fill in.

 Your donor needs to state the following:
  • Their name, address and relationship to you, the mortgage applicant.
  • The total amount of the gift.
  • The source of the funds.
  • Proof that the donor is financially solvent.
They will also need to confirm that:
  • You don’t need to repay the money. 
  • The donor has no stake in the property.

Are gifted deposits subject to tax?

A gifted deposit for a mortgage from an immediate family member will be classed as a Potentially Exempt Transfer (PET) by HMRC. This means you will not be liable for Inheritance Tax (IHT) when the gift is made. 

If the donor passes away within seven years of the gift date, you will be charged Inheritance Tax. 
The content on this page is for reference and is not financial advice.
For impartial financial guidance, try MoneyHelper.