What Is a Gifted Deposit?

Buying a home can be challenging, particularly when saving enough money for a deposit is one of the biggest hurdles. For some buyers, family members or other individuals may be able to provide financial help in the form of a gifted deposit.

But what is a gifted deposit, how does it work, and what do you need to know if you’re buying a property with one?

In this guide, we explain everything you need to know about gifted deposits for a house purchase, including who can provide one, what lenders require and the documents you may need.

What is a gifted deposit?

A gifted deposit is money given to a home buyer to help them purchase a property. The money is provided as a genuine gift and is not expected to be repaid.

For example, a parent might give their child £20,000 towards the deposit for their first home. The buyer can then use this money alongside their mortgage to purchase the property.

A gifted deposit is different from a loan because the person giving the money does not expect to get it back.

Gifted deposits are relatively common in the UK, particularly among first-time buyers who receive financial help from parents or other family members.

Who can gift a deposit?

The rules can vary between mortgage lenders, but gifted deposits are commonly provided by close family members such as:

• Parents

• Grandparents

• Brothers or sisters

• Other close relatives

Some mortgage lenders may accept gifts from other people, while others have stricter requirements.

If you are planning to use a gifted deposit, it is important to check your mortgage lender’s requirements before the money is transferred.

Does a gifted deposit have to be repaid?

No. A genuine gifted deposit does not have to be repaid.

The person providing the money must usually confirm that they have no expectation of receiving the money back and that they will have no ownership interest in the property as a result of making the gift.

This is one of the key differences between a gifted deposit and a loan.

If the money is actually intended to be repaid, it should not be described as a gifted deposit. Your mortgage lender and conveyancer need to know the true nature of the funds.

Why do mortgage lenders need to know about a gifted deposit?

Mortgage lenders need to understand where a buyer’s deposit has come from.

This is partly because lenders need to assess the buyer’s financial circumstances and partly because solicitors and conveyancers have obligations relating to anti-money laundering and source-of-funds checks.

If someone is giving you money towards your property purchase, your conveyancer will normally need evidence explaining where the money came from.

You should therefore tell your mortgage broker, lender and conveyancer about the gifted deposit at an early stage.

What is a gifted deposit letter?

If you are receiving a gifted deposit, your conveyancer or mortgage lender will usually ask the person providing the money to sign a gifted deposit letter or declaration.

The exact wording and requirements can vary, but the letter will typically confirm:

• The name of the person giving the money

• The amount being gifted

• The relationship between the donor and buyer

• That the money is a genuine gift

• That the money does not need to be repaid

• That the donor will not have an interest in the property

• The source of the funds, where required

Your conveyancer or mortgage lender may provide their own form or specify exactly what information they require.

Does a gifted deposit affect your mortgage?

A gifted deposit can affect a mortgage application, but this depends on the lender and the individual circumstances.

Mortgage lenders will generally want to know the size and source of the deposit. They may also have specific rules about who can provide a gifted deposit.

For example, one lender may accept a gift from a parent while another may have different requirements.

The larger your deposit, the lower your loan-to-value (LTV) ratio may be. This can potentially affect the mortgage products available to you.

Can a gifted deposit be used for a first-time buyer mortgage?

Yes. A gifted deposit can generally be used by first-time buyers, subject to the requirements of the mortgage lender.

For example, if you are buying a £250,000 property and your parents give you £25,000 towards your deposit, you could potentially use that money as part of your overall deposit.

However, the lender will still need to be satisfied that the gift meets its criteria.

Do you have to pay tax on a gifted deposit?

The tax position surrounding gifts can be complicated, particularly where large sums of money are involved.

In the UK, there is generally no immediate gift tax simply because someone gives you money. However, the gift may have implications for Inheritance Tax depending on the circumstances and how long the person giving the money survives after making the gift.

There can also be different considerations depending on the nature and size of the gift.

Because tax rules can change and individual circumstances differ, it is sensible to obtain independent tax advice if a substantial amount of money is being gifted.

Can parents gift a deposit for a house?

Yes. Parents gifting a deposit for a house is one of the most common examples of a gifted deposit.

The parents will normally need to provide documentation confirming that the money is a genuine gift and that they will not have a legal or financial interest in the property.

The mortgage lender and conveyancer may also need evidence of where the parents obtained the money.

Can a grandparent gift a deposit?

A grandparent can potentially provide a gifted deposit, subject to the requirements of the mortgage lender.

As with any gifted deposit, the donor will normally need to confirm that the money is a genuine gift and that they do not expect repayment.

Can a gifted deposit come from someone outside your family?

Potentially, but this depends on the mortgage lender.

Some lenders have specific restrictions on who can provide gifted deposit funds. A gift from a close family member may be more straightforward than a gift from a friend or another unrelated person.

If the person providing the money is not a close relative, tell your mortgage broker and conveyancer as early as possible so they can confirm whether the arrangement is acceptable.

What documents are needed for a gifted deposit?

The exact requirements vary, but you may be asked to provide:

• A gifted deposit letter or declaration

• Identification for the person providing the gift

• Evidence of the donor’s address

• Bank statements

• Evidence showing the source of the gifted funds

• Confirmation that the gift does not need to be repaid

Your conveyancer will tell you what documents are required for your particular transaction.

What is the difference between a gifted deposit and a loan?

The key difference is whether the money has to be repaid.

Gifted deposit: The money is given to the buyer and does not need to be repaid.

Deposit loan: The buyer receives money that they are required to repay.

This distinction is important because a mortgage lender needs accurate information about the buyer’s financial commitments.

If someone gives you money but expects repayment, you should tell your mortgage lender and conveyancer rather than treating it as a gifted deposit.

Can a gifted deposit cause problems when buying a house?

A gifted deposit does not necessarily cause problems, but delays can occur if the lender or conveyancer does not have the required information.

Common issues include:

• The donor’s identity documents have not been provided.

• Evidence of the source of funds is missing.

• The lender does not accept gifts from that particular donor.

• The gift is actually a loan.

• The donor expects an interest in the property.

• The money has been transferred without the necessary checks being completed.

To avoid unnecessary delays, discuss the gifted deposit with your mortgage broker and conveyancer before the money is transferred.

How long does a gifted deposit take to be approved?

There is no standard timescale.

The process depends on how quickly the donor can provide the required documents and how quickly the lender and conveyancer can complete their checks.

Providing the necessary paperwork promptly can help prevent the gifted deposit from delaying your property purchase.

Can a gifted deposit be used for a house deposit and legal fees?

This depends on the circumstances and the mortgage lender.

A gifted sum can potentially be used towards the overall costs of buying a property, but you should make sure your lender and conveyancer know exactly how you intend to use the funds.

Remember that buying a property involves more than just the deposit. You may also need to budget for conveyancing fees, mortgage costs, surveys, removals and potentially Stamp Duty Land Tax.

Final thoughts on gifted deposits

A gifted deposit can make buying a home more achievable, particularly for first-time buyers who have family members willing to provide financial assistance.

However, it is important to be transparent about where your deposit has come from and to provide the documentation requested by your mortgage lender and conveyancer.

If you are considering using a gifted deposit, speak to your mortgage adviser and conveyancer early in the buying process. This can help ensure that the gift meets your lender’s requirements and that the necessary source-of-funds checks can be completed without unnecessary delays.