Gifted deposit – what is it?
In its literal sense it is a cash gift. If you are fortunate enough to be gifted money that helps you to get on the property ladder consider yourself lucky. Buying a house is probably the biggest financial commitment you will ever make. It is now a frequent occurrence to be gifted a sum of money (referred to as a “gifted deposit” even if greater than the usual 10% deposit paid when contracts are exchanged) to make the dream of owning your own home a reality.
Do I need to tell my mortgage advisor or solicitor?
Absolutely, both need to be told.
With that in mind, you need to be aware that a gifted deposit will need to be declared both to your lender and to your solicitor. There must be no expectation that you have to pay the money back – this makes it a loan which will be very unpalatable to a mortgage lender. A “gifted deposit declaration” will prove to the lender that the money is a gift. For lenders this is particularly important as it ensures their security is protected and the person(s) making the gift cannot come forward at a later date asking for the money to be repaid or their contending they have an interest in the property. Critical to any mortgage lender is that they are satisfied there are no undisclosed debts affecting their security and that any monies said to be a gift to the borrower truly is a gift and not a loan.
What should the document include?
Most lenders will have their own standard form declaration, but you should expect the document to set out:
- the relationship between the person gifting and the person receiving the gifted deposit.
- the total amount being gifted, confirming it does need to be repaid and nor will it result in there being any legal or equitable charge over the property in favour of those making the gift.
- an explanation of source of funds as to how it was accumulated (savings account statements, bonds in stocks and shares etc). Put simply, where did the money being gifted come from?
As part of the gifted deposit declaration those making the gift will also need to provide their ID (copy passport or similar acceptable proof of identity) and proof of address. The declaration will also usually include the person declaring they are not bankrupt and nor is there any present threat of such.
Are there any tax implications?
In the UK, you are allowed to give away up to £3,000 per year exempt from inheritance tax, and any unused allowance can be carried over from the previous year. Whilst gifted deposits tend to be tax free, depending on the amount it may be subject to inheritance tax if the amount being gifted is large. Those making the gift should always consult with their accountant or an independent financial adviser for advice specific to their circumstances.
What else should I consider?
It is always advisable to consider the different types of joint ownership and maybe look at a Declaration of Trust. If you are buying a property with someone else and things don’t work out in the future the planning that you do at outset may well pay dividends.
Feel free to get in touch to speak to one of our experienced lawyers who can help to talk you through gifted deposits and co-ownership questions.