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Gifted deposits
If you’re a first time buyer who wants to know more about gifted deposits then we’re here to help you. Learn about what one is, who can give you a gifted deposit, how to declare the money, and the structure of a gifted deposit letter.
How does a gifted deposit work?
There are a few steps to using a gifted deposit for buying a home.
1. Give a gifted deposit letter
Give your conveyancer a letter that confirms the deposit is a gift. This is also called a declaration letter. It declares that the person who gave you the gift doesn’t expect you to pay it back. If you must pay back the money, it becomes a loan, which may make it harder for lenders to approve you for a mortgage.
By signing the letter, your gift giver also shows they accept that their gift doesn’t give them rights over the property.
2. Get ID from the person gifting
Your conveyancer may also need proof of identification from the person gifting the money. This can vary, so ask what they need.
Typically, you’ll need;
- A photo ID such as a passport or driving licence.
- Two different proofs of address.
Proof of address could be a:
- Driving licence
- Utility or council bill
- Bank statement
- Letter from HMRC.
3. Get proof of the money
Your conveyancer needs to check where the money has come from. This might be from the sale of a house or other asset, the sale of shares, or a pension. It may also be something they have inherited from another relative.
If the gift has come from a separate saving pot in your donor's name, it can be more complicated. Your donor may need to show evidence of where they got the money. This is to prove the funds meet Anti-Money Laundering Regulations.
Who can give a gifted deposit?
There are some limits on who can gift a deposit, and lenders will need to check you meet their rules.
Good to know
Other lenders may not accept gifted deposits at all, so you need to be upfront if you’re using one.
Let’s look at the details
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Each lender may need different things from your gifted deposit letter. Typically, they’ll need:
- Your name and address.
- The name and address of the person who gave you the gift.
- The relationship between you both.
- The total amount of the gift.
- Where the gift has come from.
- Confirmation that you won't have to pay it back.
- Confirmation that the donor won’t have any stake in the property.
- Proof that the donor is financially stable and unlikely to face bankruptcy.
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You won’t have to pay inheritance tax on a gifted deposit from a parent or grandparent if they live for the next seven years.
If the donor does die within seven years, the money will become a Chargeable Transfer. In this case, you may need to pay inheritance tax.
You also have a £3,000 tax-free gift allowance each year. You don’t have to pay tax on any money you get under this limit.
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