Do You Have to Declare a Gifted Deposit in the UK?

Purchasing a property is a significant financial undertaking, and many first-time buyers rely on financial assistance from family or friends to secure a mortgage. One common form of assistance is a gifted deposit, where a relative or friend provides a sum of money to contribute towards the purchase price. However, it is important to understand the rules and regulations surrounding gifted deposits, including the requirement to declare them to the lender and the potential implications for inheritance tax.

What is a Gifted Deposit?

A gifted deposit is a financial gift used to form all or part of a mortgage deposit. The gifter, typically a parent, grandparent, or close relative, must have no intention of owning any part of the property being purchased. The gift must be unconditional and not subject to any expectation of repayment.

Do You Have to Declare a Gifted Deposit?

Yes, it is mandatory to declare any gifted deposits to both your lender and solicitor. This is required as part of the lender’s anti-money laundering checks and to ensure that the deposit is a genuine gift and not a loan disguised as a gift.

How to Declare a Gifted Deposit

Most major mortgage lenders provide standardized forms for gifted deposit declarations. These forms typically require the following information:

• Recipient’s details: Name and contact information of the person receiving the gift.
• Source of funds: Name and contact information of the person providing the gift.
• Relationship between parties: The relationship between the gifter and recipient (e.g., parent, grandparent, sibling).
• Amount of gift: The amount of money being gifted.
• Confirmation of no stake in property: A statement that the gifter will not have any ownership interest in the property.
• Confirmation of no expectation of repayment: A statement that the gift is not a loan and is not expected to be repaid.
• Evidence of gifter’s solvency: Proof that the gifter has sufficient funds to make the gift without causing financial hardship.

Additional Proof Required

In addition to the gifted deposit declaration form, the gifter may be required to provide additional proof of identity and financial solvency. This may include:

• Proof of ID: Passport or driver’s license.
• Proof of address: Utility bills or bank statements.
• Proof of funds: Bank statements or other documentation showing the source and availability of the gifted funds.

Inheritance Tax Implications

While there is no upper limit on the amount of a gifted deposit, larger gifts may be subject to inheritance tax. Inheritance tax is a tax on the value of an estate when someone dies. The current inheritance tax threshold is £325,000 per individual. Any gifts made within seven years of death are potentially subject to inheritance tax. However, there are certain exemptions and allowances that may reduce or eliminate the tax liability.

Protecting a Gifted Deposit

If you are gifting a deposit to someone who intends to purchase a property with another person, it is advisable to consider a declaration of trust. A declaration of trust is a legal document that clarifies the ownership rights and responsibilities of each party involved in the purchase. This can help protect the gifter’s interests in the event of a relationship breakdown or separation.

Declaring a gifted deposit is an essential part of the mortgage application process. It ensures that the lender is aware of the source of the funds and that the gift is genuine. Failure to declare a gifted deposit can lead to delays or even rejection of the mortgage application. By understanding the rules and requirements surrounding gifted deposits, you can ensure a smooth and successful home-buying process.