A gifted deposit is money a family member, or sometimes a friend, gives you towards your deposit that you don’t have to pay back. Most mortgage lenders in Northern Ireland accept gifted deposits, as long as the person giving the money signs a letter confirming it’s a gift, shows where the money came from, and has no share in the home. Handled properly, a gift can be the difference between renting for years and buying now.
This guide explains how gifted deposits work, what lenders and solicitors will ask for, the tax points the person giving should know about, and the other ways family can help if a straight gift isn’t right.
What counts as a gifted deposit?
A gift is money you’ll never be asked to repay, and that gives the person who gave it no stake in your home. If either of those isn’t true, lenders don’t treat it as a gift:
- If the money has to be paid back, it’s a loan. Lenders count it as a debt, which can reduce how much you can borrow, and many won’t accept a borrowed deposit at all.
- If the giver wants a share of the property, they become part-owner, and the mortgage has to be set up with that in mind.
That’s why it’s important to be clear with your family, your lender and your solicitor about what the money is from the start.
Who can give you a deposit?
Most lenders are happy to accept gifts from close family, such as parents, grandparents, brothers and sisters. Some accept gifts from other relatives, and a smaller number accept gifts from friends. Rules differ between lenders, which is one reason it helps to have a broker check before you apply.
There’s no set limit on how much someone can give. What matters is that the gift, together with any savings of your own, covers the deposit the lender needs, and that the money can be traced to a legitimate source.
What the lender and solicitor will ask for
Lenders and solicitors have to carry out anti-money laundering checks, so expect to provide the following for the person giving the money:
- A signed gift letter confirming the amount, that it’s a gift and not a loan, that it doesn’t have to be repaid, and that the giver will have no interest in the property. Many lenders have their own form.
- Photo ID and proof of address for the giver.
- Bank statements showing the money in the giver’s account, and sometimes where it came from, for example savings, a property sale or an inheritance.
Tell the lender about the gift when you apply, not later. If the giver will be living in the home with you, the lender may also ask them to sign a form confirming they won’t claim a right to stay there ahead of the lender.
Gifted equity: buying from a family member
If a family member is selling you a home for less than it’s worth, some lenders will treat the difference as your deposit. This is known as gifted equity. For example, if a parent sells you a home valued at £200,000 for £180,000, the £20,000 discount can count as a 10% deposit. Not every lender offers this, and it can have tax implications for the seller, so it’s worth taking advice before you agree a price.
Using a gift with Co-Ownership
A gift can usually go towards the deposit on the share you’re buying through Co-Ownership. Tell Co-Ownership and your lender about it early, as both will want to see where the money came from.
Tax points for the person giving the money
You don’t pay tax on a gift you receive. For the person giving it, the main thing to be aware of is inheritance tax:
- Each person can give away £3,000 a year without it counting towards their estate, and can carry forward any unused allowance from the previous tax year.
- A parent can give £5,000 towards a child’s wedding, on top of that.
- Larger gifts are normally free of inheritance tax if the giver lives for seven years after making them. If they die within seven years, the gift may be taken into account when working out inheritance tax on their estate.
We don’t give tax advice, so if a large gift is involved, the person giving it may want to speak to an accountant.
Other ways family can help
If a straight gift isn’t possible or doesn’t feel right, there are other options:
- Joint borrower, sole proprietor mortgages. A parent or relative joins the mortgage so their income helps you borrow more, but only you own the home.
- Family deposit mortgages. Some lenders let a family member put savings into a linked account as security instead of giving you the money. The savings are usually released after a set number of years if the payments have been kept up.
- A loan from family. This is possible with some lenders, but it must be declared and will count against what you can borrow.
Each of these works differently, and each carries some risk for the family member, so we’ll explain them clearly before anyone commits.
Questions people ask
Can a friend give me a gifted deposit?
Some lenders accept gifts from friends, but many only accept gifts from family. We’ll check which lenders will accept your gift before you apply.
Do I have to pay a gifted deposit back?
No. If you do have to pay it back, it’s a loan, not a gift, and lenders need to know. A loan counts as a debt and can reduce how much you can borrow.
What if my parents want their money back when I sell?
Then it isn’t a straight gift. Fewer lenders accept that arrangement, and it needs to be set up properly by a solicitor and declared to the lender. We can talk you through the options.
Is there a limit on how much can be gifted?
Lenders don’t usually set a limit. They need the gift and any savings of your own to cover the deposit, and they need to see where the money came from.
Can a gifted deposit come from abroad?
Some lenders accept gifts from family living abroad, usually with extra checks on where the money came from. Tell us early so we can choose a lender that accepts it.
Will my parents have to pay tax on the gift?
Not at the time of giving. Larger gifts are normally free of inheritance tax if the giver lives seven years afterwards, and each person can give £3,000 a year without it counting at all. For larger sums, they may want advice from an accountant.
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How McDowell can help
We’re a Northern Ireland based mortgage broker with over 30 years’ experience. We’ll check which lenders will accept your gift, tell you exactly what the person giving it needs to provide, and work out what you could borrow. Find out more about first-time buyer mortgages, read how much you could borrow, or book a free call below.
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