Comparison · Mortgages · 2026
Gifted Deposit vs Gifted Equity Mortgage 2026: How Family Help Works
Family financial help toward a house purchase generally takes one of two forms: a gifted deposit of cash, or gifted equity where a family member sells a property below market value. Both reduce the amount a buyer needs to borrow, but the paperwork, valuation requirements and inheritance tax exposure differ. Here is how they compare in 2026.
TL;DR - 30-Second Summary
- - Gifted deposit: a cash sum given toward a purchase from any seller, confirmed by a gifted deposit letter
- - Gifted equity: a discount on the sale price when buying a property directly from a family member
- - Both are potentially exempt transfers: may be pulled back into the donor's estate for IHT if they die within 7 years
Side by Side: Gifted Deposit vs Gifted Equity
| Feature | Gifted Deposit | Gifted Equity |
|---|---|---|
| Form of gift | Cash sum toward the purchase | Discount on the sale price |
| Who the property is bought from | Any seller (unrelated to donor) | The family member giving the gift |
| Key document | Gifted deposit letter | Independent valuation + gifted equity declaration |
| Can it cover the whole deposit | Yes, if lender allows 100% gifted deposit | Often yes — discount itself acts as deposit |
| Inheritance tax treatment | Potentially exempt transfer (7-year rule) | Potentially exempt transfer (7-year rule) |
| Seller's existing mortgage | Not applicable | Must be redeemed from sale proceeds |
What Is a Gifted Deposit?
A gifted deposit is money given by a family member — usually a parent or grandparent — to help fund a house purchase, with no expectation of repayment and no stake in the property. Lenders require a signed gifted deposit letter from the donor confirming the money is an outright gift, they will have no legal or beneficial interest in the property, and (usually) that they are not receiving the money back if the buyer later sells.
Most lenders accept gifted deposits from immediate family; some allow non-family gifts (such as from an employer) but may cap the accepted percentage or apply extra checks under anti-money-laundering rules.
What Is Gifted Equity?
Gifted equity arises when a family member sells you a property for less than its full market value — for example, parents selling their £300,000 home to their child for £240,000, with the £60,000 difference treated as gifted equity acting as the deposit. An independent RICS valuation is normally required to establish the true market value, and your solicitor will need a formal declaration confirming the gifted equity amount.
Because the discount itself functions as the deposit, gifted equity purchases can allow buyers to secure a mortgage with no separate cash deposit at all, provided the lender is comfortable with the loan-to-value ratio based on the full market value (not just the discounted price).
Inheritance Tax and the 7-Year Rule
Both gifted deposits and gifted equity are treated as potentially exempt transfers (PETs) for inheritance tax. If the donor survives 7 years after making the gift, it falls outside their estate entirely. If they die within 7 years, the gift's value may be brought back into the estate, with taper relief reducing the tax charge on a sliding scale between 3 and 7 years after the gift — but only if the total value of gifts exceeds the available nil-rate band (£325,000).
With gifted equity, HMRC will look at the discount amount (market value minus sale price) as the value of the gift for these purposes, not the full property value.
Who Should Choose What?
- - You are buying from an unrelated seller
- - A family member wants to give a set cash sum
- - You need flexibility on which property to buy
- - A family member is selling their own property to you
- - You want to avoid finding a separate cash deposit
- - The family member is comfortable receiving below market value
Speak to a solicitor and financial adviser early, since both routes require specific paperwork and can have inheritance tax implications that are easier to plan around in advance.