Helping Children onto the Property Ladder: Rules Around Gifting Deposits

Getting together enough money for a deposit is often the biggest hurdle for first-time buyers trying to get onto the property ladder. As a parent or grandparent, you may be keen to help out by gifting some money to put towards your loved one’s deposit. However, there are rules around how much you can gift. This article looks at the ins and outs of gifting for deposits.

How much can you gift?

When gifting a cash deposit, the amount that can legally be gifted depends on whether it’s a family member or non-family member:

  • Family member - You can gift any amount to a family member (defined as spouse, civil partner, child, grandchild, parent or grandparent) with no tax implications. This applies as long as you can prove the gift and have the funds available.
  • Non-family member - Stricter rules apply for non-relatives. You can give up to £3,000 in a tax year without tax being due. Above this amount, inheritance tax may have to be paid if you die within 7 years of making the gift [1].

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Even with these allowances, lenders will want evidence that the money is genuinely a gift and not a loan. So you’ll need to sign a gift letter or deed confirming the gift and that it doesn’t need to be repaid [2].

Does a gifted deposit affect mortgage eligibility?

Lenders need to ensure any deposit is from a legitimate source, so gifted deposits can face more scrutiny. With a large gift from a family member, the lender may ask for proof of your relationship, bank statements showing the funds, and the signed gift letter [3].

Provided you can show evidence that the gift is genuine, then deposit gifts from immediate family shouldn’t affect mortgage eligibility. But very large gifts from wider family or non-relatives may raise eyebrows. In this case, further proof of the gift might be required and affordability checked to ensure regular income can cover the mortgage.

Impact on Stamp Duty

In England and Northern Ireland, gifted deposits can impact stamp duty payable on the property purchase. If the deposit gift takes the property value above a stamp duty threshold, then the higher rate of stamp duty applies [4].

For example, if the property is £500,000 and you gift a £50,000 deposit, stamp duty increases from £15,000 to £20,000. In Scotland and Wales, gifted deposits don’t affect stamp duty.

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Using equity release for gifting

Drawing money from your property’s value via equity release is one way of freeing up funds to gift. As long as affordability criteria are met, you can release tax-free cash from your home to gift [5].

With lifetime mortgages, you retain ownership of your property while taking a loan against its value. Interest accrues but no repayments are due until you pass away or move into long-term care. So this can provide funds to gift while allowing you to stay in your home. However, equity release reduces the value of your estate and inheritance [6].

 

Things to consider

Before gifting money, have an open discussion within the family to avoid misunderstandings. Be clear that the money is an unconditional gift that doesn’t need repaying. Seek legal and financial advice to understand any tax implications. And inform your mortgage provider to avoid delays.

A gifted deposit can be a great leg up for loved ones wanting to buy their first home. But follow the rules to avoid complications further down the line.

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