What is Gifted Deposit?

Full Definition

A gifted deposit is money provided by a parent, other family member, or occasionally a friend, to help a buyer fund some or all of a property deposit, on the basis that it is an outright gift rather than a loan that must be repaid. Because a mortgage lender's risk assessment depends on understanding the buyer's true financial position, and because an undisclosed loan could give the person who "gifted" the money a competing claim over the property later, lenders and conveyancing solicitors require a signed gifted deposit letter confirming the donor's identity and relationship to the buyer, confirming the money is a genuine gift with no expectation of repayment, confirming the donor will have no legal or beneficial interest in the property, and confirming the source of the gifted funds (to satisfy anti-money-laundering checks). Most lenders only accept gifts from immediate family members without additional scrutiny, and gifts from friends, distant relatives, or unrelated third parties may be restricted or require extra documentation and identity checks; lenders will also typically ask for bank statements showing the money has been in the donor's account for a reasonable period, to evidence the funds are legitimate savings rather than, for example, a new undisclosed loan taken out by the donor. A gifted deposit has no direct Income Tax or Capital Gains Tax consequences for the buyer, but it can have Inheritance Tax implications for the donor: the gift becomes a Potentially Exempt Transfer, meaning it falls outside the donor's estate for Inheritance Tax purposes only if the donor survives seven years from the date of the gift, with taper relief reducing the tax payable if they die between three and seven years afterwards. First-time buyers relying on a gifted deposit should also check that the gift does not affect their first-time buyer status for Stamp Duty relief or Lifetime ISA purposes, since those reliefs are based on the buyer's own history of property ownership, not on where the deposit money came from.

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