Gifted Deposits — Mortgage and Inheritance Tax Rules for 2026/27
How a gifted house deposit affects mortgage applications and inheritance tax planning for the person giving it, under 2026/27 UK rules.
Why Lenders Need to Know the Source
Mortgage lenders assess the source of every part of a deposit as part of anti-money-laundering and affordability checks, and a gifted deposit specifically requires a signed letter from the person giving it, confirming that the money is an outright gift, that there's no expectation of repayment, and that the giver won't have any ongoing legal interest or stake in the property being bought. Some lenders also ask for evidence of where the gifted funds themselves came from, to confirm the source is legitimate. Presenting a gift as though it were personal savings, to avoid this paperwork, is treated as mortgage fraud and can unravel the whole mortgage offer if uncovered, even after completion.
The Inheritance Tax Position for the Giver
Cash gifts, including deposit gifts, aren't taxed as income to the giver or the recipient at the time they're made. The relevant tax question sits with Inheritance Tax and the giver's own estate: a straightforward cash gift is a Potentially Exempt Transfer (PET), which becomes entirely exempt from IHT if the giver survives at least seven years from the date of the gift.
| Years between gift and death | IHT treatment of the gift |
|---|---|
| 7+ years | Fully exempt — outside the estate |
| 3–7 years | Taper relief reduces the IHT rate charged on the gift |
| Under 3 years | Full IHT rate may apply if the estate exceeds available nil-rate bands |
This means a gifted deposit given well in advance of any expected death carries no lasting IHT consequence, but a gift made shortly before an unexpected death could, in principle, be brought back into the calculation of the estate's IHT liability, depending on the size of the estate and available reliefs.
Deposit Size, Loan-to-Value and Affordability
A larger deposit — whether from savings or a gift — reduces the loan-to-value ratio of the mortgage, which can unlock meaningfully better interest rates as you cross LTV thresholds (commonly 95%, 90%, 85%, 80%, 75%). What a gift doesn't change is the separate income-based affordability assessment: lenders still cap how much they'll lend based on your income, existing debts and outgoings, regardless of how large a deposit you're putting down. A gifted deposit therefore helps with rate and LTV, but doesn't increase the maximum loan amount available on a given income.
Getting the Paperwork Right From the Start
- Ask your lender or broker for their specific gifted deposit letter template early in the process
- Confirm with the giver whether they expect to survive seven years, and understand the PET taper if not
- Keep evidence of the source of the gifted funds in case the lender or solicitor asks
- Check whether your specific lender restricts which family relationships qualify for a gifted deposit
Use the mortgage affordability calculator below to see how a larger deposit changes your loan-to-value, and the inheritance tax calculator to understand the giver's wider estate position.
Frequently asked questions
Does a mortgage lender need to know a deposit is a gift rather than my own savings?
Yes — lenders require full disclosure of the source of deposit funds, and a gifted deposit needs a signed gifted deposit letter from the giver confirming it's a genuine gift with no expectation of repayment and no ongoing interest in the property. Trying to present a gifted deposit as your own savings is mortgage fraud and can void the mortgage offer entirely if discovered.
Does the person giving the deposit need to pay tax on it?
There's no Income Tax or Capital Gains Tax simply for gifting cash to help with a deposit. The relevant consideration is Inheritance Tax: a gift of cash is a Potentially Exempt Transfer, meaning it falls entirely outside the giver's estate for IHT purposes if they survive seven years from the date of the gift, but could still be counted in their estate (with tapering relief after three years) if they die within that period.
Can grandparents or other family members give a deposit, not just parents?
Yes — lenders generally accept gifted deposits from a range of close family members, though some lenders have specific rules about which relationships qualify and may look more closely at gifts from non-immediate family. The same Potentially Exempt Transfer rules for Inheritance Tax apply regardless of which family member is making the gift.
Does using a gifted deposit affect how much I can borrow?
The deposit itself doesn't reduce your borrowing capacity, but lenders still assess your income and outgoings independently to determine what mortgage you can afford, meaning a larger gifted deposit reduces the loan-to-value (and can unlock better rates) without changing the income-based affordability limit on the loan amount itself.
Try the calculators
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