Gifted deposits: why your parents can’t just send the money

TL;DR

• Most lenders accept a deposit gifted by close family, as long as it is a genuine gift with no strings and it is properly documented.
• You will need a signed gift declaration, plus proof of who the giver is and where their money came from, so tell your conveyancer early.
• A gift does not change how much you can borrow, and it only raises an inheritance tax question if the giver dies within seven years.

Many first-time buyers get help with their deposit from family. If that’s you, it’s good news. But there’s a catch that surprises a lot of people: you can’t just ask mum and dad to transfer the money and carry on.

Before your purchase can go ahead, your conveyancer and your mortgage lender both have to be satisfied about where every pound of your deposit came from. A gift is no exception. Handled well, it’s straightforward. Handled late, it’s one of the most common reasons a completion date slips.

What counts as a gift, and what doesn’t

A gift only works for mortgage purposes if the person giving the money gives up all claim to it, and to any share of the property it helps buy. If there is any expectation that the money will be repaid, or that the giver keeps a stake in the home, it is not a gift. It is a loan, or an undeclared interest in the property, and either one changes your mortgage application completely.

In practice, these are the strings that turn a gift into something else, and most lenders will decline once they spot them:

• A charge registered against the property in the giver’s favour
• A trust deed giving the giver a share of the equity
• Any repayment arrangement, however informal
• An expectation that the giver can live in the property or get the money back when it is sold

Presenting a loan as a gift is not just a paperwork problem. It can amount to mortgage fraud under the Fraud Act 2006, and lenders treat it seriously. If a family member genuinely wants some protection over what they are putting in, that needs to be set up properly from the start, with a trust deed drawn up by a solicitor, not an informal understanding kept off the mortgage file.

Why the checks exist

Conveyancers are required by law to check the source of the money used to buy property. The rules exist to stop money laundering, and they apply to everyone, however ordinary the circumstances.

So when part of your deposit comes from someone else, we need to see two things: that the money really is a gift, and where the person giving it got it from.

What the person giving the money will be asked for

The details vary between lenders, but you should expect the giver to provide:

1. A gifted deposit declaration. A signed letter or form confirming the money is a gift, not a loan, that they don’t expect it back, and that they won’t own any share of the property. It usually needs to be witnessed.
2. Proof of identity and address. Usually a passport or driving licence and a recent utility bill or bank statement.
3. Bank statements. These show the money in their account and where it came from, such as savings built up over time, the sale of a property, or an inheritance.

If the giver will be living in the property, the lender may also ask them to sign a form giving up any claim to stay there if the property were repossessed. Lender policy varies more than people expect: some cap the share of a deposit that can be a gift, and some only accept gifts from close family, so it is worth your broker checking your lender’s position early.

How and when to send the money

• Send it by bank transfer, not cash. Cash deposits are much harder to trace and can hold things up.
• Keep the trail simple. Money that has moved through several accounts takes longer to check.
• Tell us early. Let your conveyancer know about the gift at the start, not the week before exchange.
• Don’t transfer it until you’re asked. We’ll tell you where and when to send it.

Common mistakes that cause delays

• A “gift” that is really a loan. If the money has to be paid back, it’s a loan, and your lender needs to know.
• Large cash payments into the giver’s account shortly before the transfer.
• Money from abroad, which can take longer to check. Lenders often want the funds routed through a UK account, and may ask for translated statements, so flag an overseas gift at the very start.
• Finding out at the last minute that the giver doesn’t have the paperwork to hand.

Gifted deposits and first-time buyer schemes

A gift does not affect your first-time buyer status, and it can usually be combined with government-backed schemes, as long as you also meet the scheme’s own rules. A scheme with an income cap or a regional price limit still assesses you against those limits, wherever your deposit came from. Shared ownership and other equity schemes sometimes apply their own checks on gifted money, to be sure the gift carries no hidden strings, so it is worth checking the scheme’s rules, or asking us to, rather than assuming the standard lender position applies.

A larger deposit lowers how much you need to borrow and can open up better mortgage rates, but it does not increase how much a lender will lend you. Affordability is based on your income, not the size of your deposit.

A note on tax

A gifted deposit is not income, so there is no income tax to pay on it, and moving cash does not trigger capital gains tax. The tax that can matter is inheritance tax, and only if the giver dies within seven years of making the gift.

Cash gifts fall under HMRC’s potentially exempt transfer rules. If the giver survives seven years, the gift is free of inheritance tax. If they die sooner, it can be counted as part of their estate, though the tax tapers the longer they survive after the gift. Everyone also has a £3,000 annual gift allowance that falls outside their estate straight away. Our guide to inheritance tax planning sets out how the seven-year rule and the allowances work in more detail.

One thing that catches people out: if the giver sells an asset, such as shares or a second property, to raise the money, that sale can create a capital gains tax bill in its own right, separate from the gift. Where the sums are significant, it is worth them taking advice before selling anything to fund a deposit.

Frequently asked questions