What to do when using a gifted deposit to buy a house

Let’s start with the basics and discuss what a gifted house deposit is.

A gifted deposit is money given to you, usually by family, to help with your home deposit. This money doesn’t need to be repaid and doesn’t give the giver any ownership stake in your property. However, be mindful of potential inheritance tax implications.

A typical deposit is at least 10% of the property price. For a £240,000 home, that’s a £24,000 deposit, so a gift can be very helpful.

Can first-time buyers use a gifted deposit?

Yes, first-time buyers can use a gifted deposit. According to Uswitch data from 2024, 37% of UK first-time buyers received their deposit as a gift. Here’s what you need to know:

• The deposit must be a genuine gift with no expectation of repayment.
• Some lenders may have specific rules about who can gift the money, often preferring close family members.
• You’ll need to provide proof of the gift, including a signed letter stating it’s non-repayable and documentation showing the source of the funds.

Types of gifted deposits

There is only one type of gifted deposit: money given without any obligation to repay. If repayment is expected, it is considered a loan and must be declared as such, which can affect your mortgage application.

Proving the source of a gifted deposit

When declaring a gifted deposit, you may need to provide a gift letter that includes:

• Your name
• The source of the money
• The relationship to the gift giver
• The amount given
• Confirmation that repayment is not expected
• Assurance that the giver will not gain any equity in the property
• Proof that the gift giver can afford the gift

Legal implications and checklist

Ensure the gift is properly documented and meets these criteria:

• A signed letter from the donor stating it is a gift with no repayment expectation or stake in the property.
• Proof of the donor’s identity and source of funds, like bank statements.
• Confirmation that the donor is financially capable of giving the gift.

Transparency with your mortgage adviser

Inform your mortgage adviser and lender about the gifted deposit early in the process. Be prepared to discuss the gift’s source and your relationship with the donor, as different lenders have different policies.

Tax implications

There could be inheritance tax implications if the gift exceeds certain thresholds or if the donor passes away within seven years of giving the gift. It is advisable to speak with a solicitor for detailed tax advice.

Get expert advice

Whether you’re just starting or well into the homebuying process, we’re here to help. Contact us today to discuss your options, assess your affordability, explore incentive schemes, and start your mortgage journey.