Gifted deposits for house purchases

Now with ever increasing numbers of purchasers using funds from family to help get them on the housing ladder, it’s important that all parties are aware of the complexities and the risks involved. If you are considering helping your children get onto the housing market or are considering accepting gifted money from family members to use as a deposit, then take a look at our frequently asked questions below to ensure you make informed decisions.

What is a gifted deposit?

A gifted deposit is an amount of money given to a purchaser of a property to pay some or all of their deposit. These gifts are assumed as unconditional and non-repayable and are usually given by parents or family members. Having a gifted deposit can help purchasers to keep mortgage payments down or enable the borrowing of more money and therefore the purchasing of a more expensive property.

What evidence is needed for a gifted deposit?

When seeing a financial advisor or mortgage broker, the broker will need to know where the deposit funds are from, you should discuss any third party funds at this point and make clear your intentions. The giftor(s) will need to declare this usually in the form of a letter to the lender. A gifted deposit template letter has been attached for your reference and some lenders have their own templates for you to use. The giftor(s) will also need to provide documentary evidence of these funds and how they’ve been accumulated along with identification documents to both the broker and solicitor acting on the purchase.

Do I need to declare cash gifts to HMRC and do I need to pay tax on a gifted deposit?

You don’t need to declare gifted deposits to HMRC unless the money generated interest or dividends, in this case you will need to declare this bank interest on your tax return. Although you may not need to pay income tax, there may be inheritance tax implications if the donor dies within seven years of making the gift, as the gift will be counted as part of their estate for inheritance tax purposes, however, there are a number of exemptions which may apply. You are advised to obtain specialist advice on this matter.

How much deposit can parents gift?

There are currently no restrictions on the amount of money that someone can provide as a gifted deposit. However, there are some mortgage lenders that may only accept gifted deposits up to a certain percentage of the property’s value.

My son/daughter is buying a house with their spouse, whilst I want to help them with the gifted money, can I protect this money from their partner if they later split?

Yes your child can put their own protections in place. You are gifting your child the money with no conditions attached, therefore to protect this money from their spouse, your child will need to put in place a Declaration of Trust, declaring that if the property was to be sold then the funds gifted are to be given back to your child. You cannot have written in the declaration that the funds are to given back to the parent, as this would not be seen as an outright gift.

I have already bought a house using my parents gifted deposit but we didn’t make a Declaration of Trust, can I do it now?

Whilst it is always best to set out these financial arrangements at the time of the purchase, you can make a declaration at a later date, as long as both owners are in agreement and sign the declaration. The Register of the Property may have to be updated to reflect the declaration and it is advised to seek legal advice.

Why do I have to provide evidence of where my money has come from to a solicitor, surely this is my business?

The solicitor is under a legal and regulatory obligation to find out where the funds have come from when they reached you and where they have been held. You will need to be prepared to provide documents such as bank and savings statements, stock and shares statements, solicitors/accountants letters from sales/probate. If the money is coming from a company, you will likely need to provide minutes from the company meeting and an accountants letter also. The solicitor will guide you with what is required, depending on the circumstances, until their obligations are fulfilled under Money Laundering Regulations and the Proceeds of Crime Act.

Can I rely on the solicitors acting on the purchase to give me legal advice?

No the solicitors acting for the purchase does just that, they are not there to advise you as giftor, of the best of course of action. If you require legal advice on gifted deposits you must do this independently of the purchase.

If the money is not a gift and I want it repaid at a later date, how can I protect my money?

Other agreements such as secured and non-secured loans can be facilitated, however the lender and solicitors will need to be advised of this agreement and you will need to instruct your own solicitors as the purchasing solicitor cannot act for all parties. Not all lenders will accept these arrangements as they will look at the affordability of the applicants and therefore it is best to agree how the money is going to be used and held at the outset.

What happens if I confirm the funds are a gift to benefit the lenders requirements but actually between my child, their spouse and me we have an informal agreement that the funds are actually a loan and repayable to me?

You will need to look at worst case scenarios:

• If your child and their joint owner do not keep up their mortgage repayments or loose the house, the lender will not repay you your money.
• If your informal loan repayments are not kept up you may need to rely on their good morals for the payments to be remade, this can put a strain on relationships.
• Considerations will need to be made in the event of death of one of the parties.

If you have made a declaration to the effect of the example gifted deposit declaration shown, but you do not consider something to be true, then you should not be proceeding.

EXAMPLE TEMPLATE LETTER

Dear Lender ………………………..

RE: PURCHASE OF 123 TURNABOUT CLOSE

I confirm that I have gifted the amount of £………… to my child/grandchild/niece/nephew……………. and their partner/co-owner …………….

I confirm that the amount is a non-conditional gift, I do not expect the sum to be repaid to me at any time.

I confirm that I will have no legal or financial claim or interest in the property and will not reside in the property now or in the future.

I have had the chance to seek independent legal advice.

I can confirm that I have provided my Identification and Source of funding information and I am happy for this information to be held.

Yours sincerely

Giftor

Further guidance on Gifted Deposits

If you are considering gifting money to a child or family member for them to use as all or part of their deposit, we would suggest getting in touch with us to provide guidance on your options and ensure your money remains protected. Get in touch with the team to day by completing the online form to the right of the page or by calling 01622 690691.

This content is correct at time of publication