Buying a first home is a lot of things – exciting, emotional and let’s face it, expensive. Some lucky first time buyers are given a little gift towards their house deposit. Whether from kind friends or family members this can truly be the gift of a lifetime in helping you secure your dream home. Gifted deposits allow you to get on the property ladder and reach an amazing milestone. However, there are certain things to understand about how they work.
This simple guide unwraps gifted deposits and answers the key questions of many first time buyers for that precious purchase.
What Is A Gifted Deposit?
A gifted deposit is a lump sum given to a first -time buyer to help them buy a property. How much is given is really up to the person giving it. A very generous family member may give the whole house deposit or any amount towards it. They can effectively be from anyone, most commonly as one of the UK’s leading conveyancing law firms we find they are from family members. The first question you likely have on your mind (and we get this a lot) is do you have to give it back? The answer is no. A gifted deposit is a gift that is not a loan so there is no legal obligation to pay it back.
What Must A First Time Buyer Do When Given A Gifted Deposit?
- Firstly, say thank you. A gifted deposit is a very generous gift that can make buying a first home or property not only possible but faster and a lot more affordable. Saving for a house deposit is often the hardest part of a property purchase for first-time buyers. Therefore, a gifted deposit helps you overcome a massive hurdle.
- Next, it is important to tell your conveyancer about a gifted deposit. This allows them to properly document the funds and protect your interests.
- It is likely your mortgage lender will also need information about the gifted deposit. This includes names, confirmation that it is an unconditional gift, a bank statement and signatures. This allows for a smooth transaction and makes things clear for all parties.
- Finally, ask your conveyancer or mortgage lender any questions you are unclear on. It is important you fully understand your rights and obligations surrounding the gift before accepting.
So, A Gifted Deposit Is Not A Loan?
Correct. A gifted deposit is not a loan and therefore unconditional. If there are conditions attached it is best to seek legal advice to make sure that accepting it is in your best interests. There is no limit on how much a gifted deposit can be so long as it is communicated to your conveyancer and mortgage advisor. Larger gifts may come with tax implications.
Crucially, the difference between a gifted deposit and a loan is that the person giving the gift does not have any stake in the property. Additionally, there are no repayment terms. This is declared before the property transaction goes ahead along with the amount and signatures. They will not be on the title deeds and in most cases they understand this. If you have any doubt over whether the gift is really a gift, it is best to speak to your solicitor and seek clarification before proceeding.
The Tax Bit
Another area where first-time buyers have a lot of questions is around tax implications of gifted house deposits. The good news is that they are actually considered gifts and not income so usually you will not have to pay tax on them. The only possibility and confusing bit is inheritance tax. If the person giving the gift passes away within seven years they may have inheritance tax liability. It is wise to have a chat with your solicitor if you have any questions on how best to proceed.
Why Do You Need To Declare A Gifted Deposit?
While a gifted deposit is a very generous gift and is a fairly simple procedure, declaring it is important for both parties. Your mortgage advisor or lender and conveyancing solicitor will need to clear the funds say mortgage deposits and also protect your interests. Making sure that it is clearly documented is important in ensuring the lump sum is an unconditional gift and not a loan. This confirms that everyone involved understands and prevents confusion later down the line. Ultimately, it paves the way to a smooth, simple transaction for your own peace of mind.
The Wrap Up
Buying your first home is a precious milestone we are sure you can’t wait to reach. Accepting a gifted deposit from a generous family member towards the purchase can be a massive help. The biggest challenge for first-time buyers tends to be raising a deposit, so this can be life changing in making it possible. There is no tax to pay on a gifted deposit. However, there may be inheritance tax implications if the person giving the gift passes away within seven years. It is important that you declare the gifted deposit to your mortgage lender and solicitor. Crucially, that it is an unconditional gift and that all parties are in agreement.
Make sure you ask your conveyancer if you have any questions or concerns, that is what they are there for.
At Waterstone Legal we are here for more than the legal work, we provide clarity and support to protect your interests and peace of mind.
