Using a Gifted Deposit to Buy a House: What You Need to Know
What is a Gifted Deposit?
A gifted deposit is when someone gives you money towards, or to fully cover, your deposit amount. This is NOT a loan, and the person giving you the money has no stake in your property. In the UK, tax law means people can’t just give you money, and family members can gift as much or as little as they would like. However, there are certain rules and requirements that you need to follow when using a gifted deposit to buy a house.
Who Can Give You Money for a Gifted Deposit?
In theory, anyone can gift you a deposit. However, most mortgage lenders prefer if the person giving you the gift is a relative, such as a parent, sibling, or grandparent. Some lenders even state that it must be a parent that gives you the money. It is important to speak to your local mortgage expert to check whether certain lenders would accept your circumstances.
What Are the Rules of Using a Gifted Deposit as a First-Time Buyer?
The main thing when you’re using a gifted deposit is that you must prove the money is a gift, without expectation of repayment. A Gifted Deposit Letter is usually all that’s required, which must include the giver’s name, your name, the total sum given, and confirm that it is a gift with no commercial interest. The letter must also confirm that the giver has no financial or commercial stake in the property, is financially solvent, and able to provide the gift. The person providing the gift needs to prove they have the funds to give you, usually with bank statements that include evidence of the source of the money.
What Happens if the Gift Giver Dies – Is Inheritance Tax Due?
If you are accepting a lump sum gift as a type of ‘living inheritance’ from an older relative, you may have to pay inheritance tax on it if they die within seven years of providing you the gift. Additionally, if the gift giver would then qualify for certain state benefits by giving you the gift, this could cause significant complications as they cannot be seen to be ‘depriving themselves of capital.’
My Parents Want to Help But Can’t Raise a Deposit – What Options Do They Have?
If your family wants to help you buy a house but can’t raise a lump sum gift, there are other options available, such as 100% loans for student property purchasers or family off-set mortgages for parents who are mortgage-free and want to help their adult children buy their first house.
Speak to Your Mortgage Adviser About Your Gifted Deposit Options
Using a gifted deposit can help increase your eligibility for a mortgage, reduce your mortgage term or payments, and help you get onto the property ladder. However, it is crucial to understand the rules and requirements when using a gifted deposit to buy a home. If you need help considering your options, contact your local mortgage expert for advice.
Common questions about using a gifted deposit
A gifted deposit is a sum of money that is given to a borrower, usually from a family member, to help with the purchase of a home. Generally, gifted deposits can be given by parents, grandparents, siblings, or other close family members.
Gifted deposits can be used with most types of mortgages, including fixed-rate, variable-rate, and tracker mortgages. However, some lenders may have restrictions on the use of gifted deposits, so it’s important to check with the lender before making an offer on a property.
Yes, you need to declare the gifted deposit to the lender as it is part of the mortgage application process. You will need to provide the lender with evidence of the gifted deposit, such as a signed letter from the person gifting the deposit and proof of the transfer.
The person giving the gifted deposit may be subject to inheritance tax if they pass away within seven years of giving the deposit. However, if the person giving the deposit lives for more than seven years, there will be no inheritance tax to pay. Additionally, if the person gifting the deposit lives in the UK, there may be no tax implications for the borrower.
In most cases, gifted deposits cannot be used for buy-to-let properties. However, some lenders may allow gifted deposits for specific buy-to-let mortgages, so it’s best to check with the lender.
If the person gifting the deposit changes their mind, you will need to find an alternative source of funding. This may involve renegotiating the purchase price or finding another lender who will accept a different deposit. It’s important to have a backup plan in case this happens.
