Comparison · Mortgages · 2026
Bank of Mum and Dad Loan vs Gifted Deposit UK 2026
When family help fund a house deposit, it can be structured as an outright gift or a formal loan. Lenders, tax treatment and what happens if things go wrong differ significantly between the two. Here is how they compare for 2026.
TL;DR - 30-Second Summary
- - Gift: simplest for mortgage lenders, but no automatic right to reclaim the money later
- - Loan: gives the family member more protection, but lenders may treat it differently in affordability and deposit checks
- - Document everything — a gifted deposit letter or a written loan agreement, ideally with legal advice
Who Should Choose What?
A gift may suit if...
- - You want the simplest possible mortgage application
- - You are comfortable giving the money away permanently
- - The amount is modest relative to your own estate
A formal loan may suit if...
- - You want some legal protection or right to repayment
- - The sum is large relative to your other assets
- - You are helping only one of several children and want fairness documented
Frequently Asked Questions
Do mortgage lenders treat a family loan differently from a gift?
Yes. Most lenders require a signed "gifted deposit letter" confirming money given as a gift is non-repayable and the giver has no interest in the property. If the money is a loan, lenders usually want it disclosed and may factor the repayment obligation into affordability, or in some cases decline to accept it as part of the deposit at all.
Can a family loan affect Inheritance Tax?
A loan that is later forgiven, or simply never repaid in practice, may still be treated as a gift for Inheritance Tax purposes if HMRC concludes repayment was never really intended. A genuinely enforced loan, by contrast, remains an asset of the lender's estate (the right to be repaid) until it is repaid or formally written off — potentially the opposite planning outcome to what the family wanted.
What happens to a gifted deposit if the couple splits up?
Once genuinely gifted, the money legally belongs to the recipient (or joint recipients) and the giver generally has no automatic right to reclaim it, even if the couple later separates — this can be a real risk if parents gift toward a child's deposit on a jointly-owned home with a partner.
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Does a family loan need to be formally documented?
It should be. A written loan agreement covering the amount, whether interest is charged, repayment terms, and what happens on death or relationship breakdown protects both sides and avoids ambiguity that could complicate a later mortgage application, divorce, or probate.
Which option gives parents more long-term control?
A structured family loan or a formal Declaration of Trust protecting a % share of the property gives the contributing family member more legal protection and potential repayment or share of proceeds on sale — a straightforward gift gives none, beyond the standard 7-year Inheritance Tax gifting rules.
Is a gifted deposit simpler for a mortgage application?
Generally yes — most lenders have standard gifted deposit paperwork and processes, while family loans can require extra underwriting scrutiny and, in some cases, are excluded from the deposit calculation altogether if the lender treats it as a liability rather than genuine equity.
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Disclaimer: This is educational information, not legal or financial advice. Always get independent legal advice and check your specific lender's gifted deposit requirements before proceeding — see gov.uk/inheritance-tax for the gifting rules.
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