Using a gifted deposit to buy a house

Getting help from family to buy a home is increasingly common. However, gifted deposits come with extra paperwork that can take buyers by surprise. Your solicitor may ask for several months of bank statements, while your mortgage lender may require a signed gifted deposit letter before approving the funds.

This guide explains what's involved when using a gifted deposit, from the letter you need to sign to the anti-money laundering checks your conveyancer must carry out, and what could happen if the donor later becomes bankrupt.

Key takeaways:

• A gifted deposit must be a genuine gift, not a loan. The donor cannot expect the money back or claim a share of the property.
• Mortgage lenders and conveyancers will usually require evidence confirming that the money is a genuine gift. This may include a signed gifted deposit letter or the lender’s own gifted deposit form.
• Anti-money laundering checks mean you'll need to prove exactly where the gifted money came from, often with bank statements and other evidence.
• If the donor becomes bankrupt within five years of gifting the money, a trustee in bankruptcy could, in some circumstances, try to claw it back.
• Large gifts can have inheritance tax implications for the donor's estate, even though the person receiving the gift doesn't pay tax on it directly.

What is a gifted deposit?

A gifted deposit is money given to you, often by a parent or grandparent, to help fund your house deposit. It's a genuine gift, not a loan, so the donor cannot reclaim it or claim a stake in your home.

This detail trips people up. Lenders and conveyancers need written confirmation that the money is unconditional. If there is any expectation of repayment or an informal agreement that the donor gets a share of the property when sold, it stops being a gift legally. It becomes something else, usually a loan or an unregistered interest in the property, both of which change the transaction.

"Deposit" here can mean two things. There's the deposit you put down to secure your mortgage (the difference between the purchase price and the loan amount) and the exchange deposit, typically 10% of the purchase price, paid when contracts are exchanged. A gifted deposit can be used for either or both, depending on how the funds are structured. Your conveyancer will clarify how the money is applied in the transaction. If you’re new to the legal side of buying a home, our complete guide to conveyancing explains what your conveyancer does from offer through to completion.

Why do you need a gifted deposit letter?

A gifted deposit letter confirms that the money is a genuine gift and that the person giving it to you does not expect you to repay it. Mortgage lenders and conveyancers may ask for one to check where the money came from and confirm that the person providing the gift will not have a financial claim over the property.

Without this letter, most mortgage lenders won't release funds, and your conveyancer can't complete the anti-money laundering checks needed to proceed. It feels like a formality until you realise how much weight it carries.

A gifted deposit letter typically needs to include:

• The donor's full name, address and relationship to the buyer
• The exact amount being gifted
• A clear statement that the money is a gift, not a loan
• Confirmation the donor has no right to any share of the property or its sale proceeds
• Confirmation of where the funds have come from (savings, inheritance, sale of an asset, and so on)
• The property address the gift relates to
• The donor's signature and the date

Many lenders and conveyancers provide their own template, so ask early rather than drafting one from scratch. You can compare conveyancing quotes through Moving Compared and find a conveyancer to handle the legal side of your purchase.

Pro tip: Sort the gifted deposit letter before you formally apply for your mortgage, not after. Chasing signatures and bank statements while your mortgage offer is on a deadline is a common cause of delay in the buying process.

Who can gift you a deposit?

Most mainstream lenders accept gifted deposits from close family, such as parents, grandparents or siblings, though the exact definition varies by lender. Gifts from friends or wider relatives are usually accepted too, but often face closer scrutiny.

Family gifting money can help first-time buyers to build the deposit they need. However, mortgage lenders have different rules about who can provide a gifted deposit. Some accept gifts from a wide range of family members, while others only accept them from certain relatives. Check your lender's requirements before you apply.

In another gifting scenario, if a family member sells you a property for less than its market value, the difference may be treated as a gifted deposit. You should tell your mortgage lender about the arrangement, as it can affect the property valuation and your loan-to-value (LTV) ratio, which is the percentage of the property’s value you’re borrowing. Letting your lender know early can help avoid delays later in the application.

What documents do you need for a gifted deposit?

Mortgage lenders and conveyancers will usually ask for evidence showing where the gifted money has come from. This may include bank statements from the person providing the gift, proof of their identity and address, and a signed gifted deposit letter confirming that the money is a genuine gift.

The exact paperwork varies slightly between lenders, but conveyancer may ask you for:

• Three to six months of bank statements from the donor's account, showing the funds building up or already sitting there

• Photo ID and proof of address for the donor

• Evidence of where the money originally came from, such as a payslip history, inheritance documentation, or proof that you sold a property or other asset

• The signed gifted deposit letter itself

If the money has moved between several accounts before reaching yours, your conveyancer may ask you to explain the transfers and provide supporting evidence. Under the Money Laundering Regulations 2017, conveyancers must carry out appropriate checks to understand where the money used in a property purchase has come from.

Anti-money laundering checks for gifted deposits

Anti-money laundering rules require conveyancers to check their clients' identities and understand where the money being used in a property transaction has come from. If someone else is contributing towards the purchase, such as through a gifted deposit, the conveyancer will usually need information and evidence about that person and the source of the money too.

These AML checks are designed to help prevent criminals from using property transactions to launder money.

For gifted deposits specifically, this means your conveyancer will want to know:

• Who the donor is and their relationship to you

• Where the money has come from, in traceable detail

• Whether the donor has been properly identified (usually via passport or driving licence, plus a recent utility bill or bank statement)

If the source of funds looks unusual, such as large cash deposits appearing suddenly or money from an account with no clear history, your conveyancer may ask for more information. These checks form part of your conveyancer’s legal and regulatory responsibilities. Providing the right documents from the outset can help avoid unnecessary delays. Some conveyancers also charge an additional fee for dealing with gifted deposits. Our guide to conveyancing fees explains the costs that may appear in your quote.

Can a gifted deposit affect your mortgage application?

Yes. If some or all of your deposit is gifted, your lender may ask for extra documents to confirm where the money has come from and that you do not need to repay it. Some lenders also set limits on how much of the deposit can come from a gift.

Some lenders are happy for your whole deposit to come from a gift, while others may ask you to put in some of your own money too. Each lender has its own rules, so check the criteria before applying.

A gifted deposit won’t normally affect affordability in the same way as a loan because you don’t have to repay it. However, it can affect your loan-to-value ratio and the mortgage products available to you. A larger deposit, gifted or not, may give you access to a wider choice of mortgage deals. If you’re buying with a smaller deposit, our guide to 95% mortgages explains how buying with a 5% deposit works.

If you’re using a gifted deposit, a mortgage adviser can help you understand which lenders are likely to accept it and what requirements you’ll need to meet.

What happens if the donor becomes bankrupt?

If the person who gives you the deposit later becomes bankrupt, there are circumstances where their trustee in bankruptcy could challenge an earlier gift and try to recover the money. This can apply to gifts made within the five years before the bankruptcy process began, although the rules are complex and depend on the donor’s financial circumstances at the time.

This doesn’t mean every gifted deposit is at risk if the donor later has financial problems. However, if there are concerns about the donor’s finances or ability to pay their debts, it’s important to tell your conveyancer so they can advise you on what this could mean for the purchase.

Do you have to pay tax on a gifted deposit?

You don't normally pay tax simply because you receive money as a gifted deposit. However, the gift can have inheritance tax implications if the donor dies within seven years of making it, depending on the value of the gift and their wider estate.

Under current inheritance tax rules, an individual can give away up to £3,000 each tax year using their annual exemption. Gifts between spouses or civil partners are generally exempt, and some other gifts may also qualify for separate exemptions.

If no exemption applies, a gift to an individual will usually be treated as a potentially exempt transfer. If the donor survives for seven years after making the gift, there is normally no inheritance tax to pay on it. If they die sooner, the gift may count towards their inheritance tax threshold. Where tax is due on a lifetime gift, taper relief may reduce the amount payable if the gift was made more than three years before the donor died.

It's a good idea for the donor to speak to a financial adviser or accountant as everyone's tax and estate circumstances are different.

What if the gifted deposit comes from overseas?

Gifted deposits from overseas are fairly common, especially when buyers have family living abroad, but they can take longer to process. Your conveyancer may ask for extra evidence, such as proof of the donor’s identity, documents showing where the money came from and, in some cases, certified translations of foreign documents. Your bank may also review a large international transfer, so it’s worth telling your conveyancer and lender early to allow time for any additional checks.

What's the difference between gifted deposit and a loan?

A gifted deposit is money you don’t need to pay back, and the person giving it to you won’t have a financial claim on the property. A loan is different because you’re expected to repay it. You must tell your mortgage lender about any borrowed money, as it could affect how they assess your finances and mortgage application.

This distinction matters more than people realise. If a family member is lending rather than gifting money, your lender needs to know because it changes your borrowing level and sometimes your ability to afford the mortgage. Some lenders may accept money borrowed from a family member, but the arrangement must be fully disclosed and meet the lender’s criteria. Depending on the circumstances, the lender may also impose conditions on how the loan is structured. Trying to pass a loan off as a gift to smooth the application is a bad idea, as it undermines due diligence and can invalidate the mortgage if discovered.

If there's any doubt about whether money is a gift or a loan, clarify it before signing anything. Have an honest conversation with everyone involved, including your conveyancer, from the start.

How can Moving Compared help?

A gifted deposit adds an extra paperwork to the buying process, so it helps to have the right conveyancer in place from the start. You can compare conveyancing quotes from regulated, experienced conveyancers through Moving Compared.

Once your mortgage is progressing, you may also want to arrange a survey before you commit to the purchase. You can compare surveyor quotes from RICS-qualified surveyors, or read our guide to home surveys if you're unsure which level you need.

When you're ready to move, you can also compare removal quotes from local removal companies.