Gifted deposits: using money from family to buy a home

A gifted deposit is money given to a homebuyer to help them buy a property¹. It usually comes from generous relatives, often described as the Bank of Mum and Dad², and it can cover some or all of the cash deposit a mortgage lender requires. The defining feature is that the money is a true gift: it does not need to be repaid, and the person giving it gets no stake in the home².

That definition matters because lenders treat a gift very differently from a loan. A loan is a debt that shows up in the buyer's outgoings and affects how much they can borrow; a gift does not. To accept the money as a gift, the lender and the solicitor will both want it declared and evidenced, usually with a signed letter from the giver, the giver's identification, and proof of where the money came from³.

The tax position is separate from the mortgage position. The buyer does not pay income tax on a gift, and gifted deposits are usually tax-free in the UK⁴. Inheritance tax can come into play for the giver's estate if the amount is above £3,000, the giver has no further tax allowance available, or the giver dies within seven years of handing over the money⁴.

A gift, not a loan: no repayment and no stake in the home

The first thing a lender will establish about any deposit money from a third party is whether it is a gift or a loan, because the two are treated completely differently. A gift, as Yorkshire Building Society puts it, means "You don't need to repay the money. The donor has no stake in the property."² Halifax states the same rule from the other direction: "The gift giver can't have any stake in the home, either."³

Both halves of that rule matter. No repayment means the money is not a debt, so it does not reduce the amount the buyer can borrow and does not appear in the lender's affordability assessment as a monthly outgoing. No stake in the property means the giver is not going to appear on the title deeds, is not a joint owner, and has no legal claim on the home if the buyer later sells it, or if the buyer's circumstances change through a relationship breakdown or a debt problem.

This is what separates a gifted deposit from the other ways family members commonly help. A loan from parents, even an informal one with no interest, is a debt the lender will usually want to see repaid, and it can reduce the mortgage offered. A joint mortgage, where the parent is named on the loan and sometimes on the deeds, gives the helper a legal interest in the property but also legal responsibility for the debt. A gift sits at one end of that spectrum: the money simply becomes the buyer's, and the giver steps away. The comparison page on gifted deposits versus joint borrower mortgages sets out how those two routes differ.

Because the giver has no stake, the gift is also irreversible in practical terms. Once the money has been used and the purchase completed, the giver cannot take it back, and any family understanding that the money will "come back eventually" is not something the mortgage or the conveyancing recognises. If a family wants repayment terms, the money is a loan and must be declared as one, which is why lenders ask the question directly.

Who can give a gifted deposit

Lenders do not accept gift money from anyone. Most restrict who counts as an acceptable giver, and the lists vary between lenders, but Halifax's guidance gives a sense of the typical boundaries. The people who usually cannot give a deposit include family friends, an employer, a developer or the buyer's landlord, an aunt or uncle who is not a blood relative, cousins, and foster or guardian children³.

The accepted list generally includes parents, stepparents and parents-in-law; siblings, half-siblings, step-siblings and brothers- and sisters-in-law; grandparents and step-grandparents; aunts and uncles related by blood; nieces and nephews; partners living with the applicant; and the applicant's children, stepchildren, sons- and daughters-in-law and adopted children³.

The reason for the restrictions is risk. Money from a developer or landlord can be an incentive dressed up as a gift, which affects the true price of the property. Money from an employer or a friend is harder for a lender to verify and carries a different risk profile than money from close family. Which? notes that a parent's help can take several forms, and that a mortgage lender may require proof that the money came from the parent, with a letter confirming the gift will not be repaid⁸.

A family friend who wants to help is not necessarily excluded from helping altogether, but a gift from them may not be accepted by every lender, so the position needs checking with the specific lender before the money moves. The wider page on family help buying a home covers the other routes, including loans and joint mortgages.

How much can be gifted

There is no legal limit on the amount one person can give another. The practical limits come from lenders and from tax. Which? reports that some lenders place a cap on what percentage of a deposit can be gifted, and that where the money is a gift the buyer needs to provide evidence to the lender that it will not have to be paid back⁹. NatWest, by contrast, states it currently has no maximum gifted deposit limits and that a gifted deposit can be used to cover any percentage of the total deposit within a property purchase⁴.

Because lenders differ, the share of the deposit that can come from a gift is something to confirm early, before the giver moves any money. A buyer planning to combine a gift with their own savings should check whether the lender caps the gifted share, and the giver should not transfer funds until the lender and solicitor have confirmed what evidence they need. The page on how much deposit you need explains how deposit size affects the mortgage deals available.

The tax side has its own thresholds, covered in full below. In short, there is no cap on gifting, but gifts above the giver's allowances are only free of inheritance tax if the giver survives seven years after making them⁴. Gifts to a husband, wife or civil partner are treated differently from gifts to children: HMRC states that gifts to a spouse or civil partner, or to a charity, are usually not taxed for capital gains purposes¹⁰, and the inheritance tax rules for spouses work similarly, though a deposit gift to a child is the more common case.

Telling your lender and solicitor about the gift

A gifted deposit must be declared to both the mortgage lender and the solicitor or conveyancer handling the purchase. Yorkshire Building Society is direct on this: "Yes, if you receive a gifted deposit, you will need to tell both your lender and your solicitor."² NatWest adds that lenders will require you to declare any gifted amounts, and that not declaring a gifted deposit could affect your mortgage application⁴.

The declaration is not a formality. The lender needs to know the deposit is a gift because it changes the affordability assessment: a loan would be an outgoing, a gift is not. The solicitor needs to know because they are responsible for checking the source of the funds under anti-money laundering rules, and because the giver's lack of any stake in the property needs to be consistent with what goes on the title. Halifax's guidance sets out the first practical step: "Give your conveyancer a letter that confirms the deposit is a gift."³

Telling both parties early avoids the most common problem, which is money arriving in the buyer's account partway through the purchase without explanation. A large unexplained transfer into a buyer's account raises questions at exactly the point the buyer wants speed: between offer and completion. Declaring the gift at the application stage, and giving the conveyancer the letter and the giver's documents in good time, keeps the conveyancing process moving.

Documents you and the giver will need

The evidence falls into two piles: the letter, and the giver's documents. Which?'s guidance on mortgage applications is blunt about the letter: "If you've been given the deposit as a gift, you'll need a letter from whoever gave you the money."¹¹

The letter's contents are broadly consistent across lenders, though the detail varies. NatWest lists what most gifted deposit letters require: the name of the receiver of the deposit, the source of the money, the relationship between the buyer and the giver or givers, the value of the gift, that the giver expects no repayment, and that the giver makes no claim to the property. The letter is signed by the gifting party or parties⁴. Halifax's version adds the addresses of both parties and proof that the donor is financially stable and unlikely to face bankruptcy³. Yorkshire Building Society's list includes the donor's name, address and relationship to the applicant, the total amount, the source of the funds, and proof that the donor is financially solvent².

Alongside the letter, the giver will typically need:

• a photo ID such as a passport or driving licence³
• two different proofs of address³
• a signed declaration confirming the money is a gift and will not need to be repaid²
• proof of the source of the funds, such as bank statements⁸

Which? also warns that gifted deposits need to be properly documented to avoid raising red flags during the mortgage application process¹³. The red flags are practical ones: a giver who cannot show where the money came from, or a letter that does not match the amount actually transferred, will slow the purchase down. The narrow page on gifted deposit evidence goes through the documents in more detail.

Anti-money laundering checks on the giver's money

Solicitors are subject to anti-money laundering regulations, and a gifted deposit is exactly the kind of transaction those rules are designed to examine: a large sum of money moving between people with no purchase or sale behind it. Yorkshire Building Society explains that the buyer's evidence can include the donor's proof of funds and identification, to help carry out anti-money laundering checks². Halifax states the purpose plainly: "This is to prove the funds meet Anti-Money Laundering Regulations."³

Which? describes the same process from the parent's side: the child's conveyancer might request bank statements as proof of the gift or loan as part of their money-laundering checks⁸. In practice this means the giver should be ready to show not just that they have the money, but where it came from, whether that is savings built up over years, a sale of shares, an inheritance they received, or a pension withdrawal. Money that has itself passed through several accounts, or arrived from abroad shortly before the purchase, will attract more questions.

The buyer's own conduct matters here too. The money should stay traceable: transferring it into the buyer's account in one go, with the letter already in the solicitor's hands, is easier to evidence than a series of small transfers over months. Which?'s guidance on mortgage application mistakes notes that unexplained deposits in a buyer's account are one of the things that can derail an application¹³. The page on conveyancing fraud covers a different risk, protecting the deposit itself once it is transferred to solicitors.

Inheritance tax: the £3,000 allowance and the seven-year rule

Gifted deposits are usually tax-free in the UK, but inheritance tax can apply if the gifted amount is above £3,000, the giver has no further tax allowance, or the giver dies within seven years of gifting the money⁴. The buyer receiving the money does not pay the tax; the question is whether the gift is later counted as part of the giver's estate.

The starting point is the annual exemption. Each person can give away up to £3,000 per tax year without the gift counting for inheritance tax at all⁵. As a couple, that means £6,000 per year as standard, and potentially £12,000 if neither partner made substantial gifts the year before, because one year's unused allowance can be carried forward⁵. The allowance can be split between any number of people¹⁶. There are separate allowances for certain occasions: £5,000 for a child's wedding gift, £2,500 for a grandchild's, and £1,000 for others¹⁶, and charity donations are unlimited¹⁶.

A deposit gift will usually exceed these allowances, and that is where the seven-year rule comes in. Larger gifts, known as potentially exempt transfers, only become tax-free if the giver survives seven years after making them⁶. If the giver survives seven years, no inheritance tax is due on the gift¹⁷. If they die within that time, the gift is taken into account when the estate is taxed¹⁸, and gifts made within seven years of a death are deducted from the basic threshold before the rest of the estate is calculated, with tax due on the excess¹⁹.

The £3,000 allowance has been frozen at that level since April 1981, and Which? has calculated that had it risen with inflation it would be worth £11,529, a difference of 284%²⁰. A frozen allowance means more ordinary family gifts now fall outside it, which is one reason more families are being pulled into the inheritance tax net generally²¹.

Taper relief reduces the tax on a gift if the giver survived at least three years after making it. The rates step down from the full 40% for deaths within three years of the gift, to 32% for three to four years, 24% for four to five years, 16% for five to six years, and 8% for six to seven years, before falling to zero beyond seven years⁷. The taper applies to the tax on the gift, not to the gift's value, and it only bites where tax is actually due, which depends on whether the gift, taken with the estate, exceeds the £325,000 threshold⁷. The legislation behind this, Section 7 of the Inheritance Tax Act 1984, sets out the conditions, including cases where the tapered calculation does not apply²².

One caution for older givers: the seven-year rule is an inheritance tax rule, not a care-fees rule. Which? notes that the seven-year rule may apply to inheritance tax planning but not to care home fee assessments, and anything given away could still be classed as deprivation of assets²³. A parent gifting a deposit with future care costs in mind should take advice on both regimes, because they work differently.

What happens if the giver dies within seven years

If the giver dies within seven years of making the gift, the gift is treated as a potentially exempt transfer that has failed. HMRC's guidance for beneficiaries confirms the trigger: tax may be due where "the person who died gave you a gift in the 7 years before they died"²⁴. The gift is added back into the estate for inheritance tax purposes, and tax is charged on it only to the extent that the estate's chargeable value, including that gift, exceeds the available thresholds¹⁹.

Who actually pays depends on the estate's arrangements. Where a home is gifted within a person's lifetime, Which? notes that the new owner is liable for any tax bill on that failed transfer⁷. For a cash gift used as a deposit, the position is set out in the estate's inheritance tax account: the executor completes form IHT400, and HMRC's notes explain that a chargeable gift is any gift not wholly covered by exemptions, with gifts made within seven years of the death deducted from the threshold¹⁹. The recipient of a gift can be asked about it as part of that process²⁴.

The practical points for a family are straightforward. The giver should keep a record of the gift, the date and the amount, because it is the estate that will need to account for it years later. The buyer should know that receiving the gift does not create an immediate tax bill for them, and that any later liability depends on the giver's date of death and the size of their estate. Which? warns that mistakes in reporting gifts, including forgotten transfers, are among the things that can trigger an HMRC investigation²⁶, so keeping the gifted deposit letter and bank records is worthwhile for both sides.

What can go wrong with an undeclared or poorly evidenced gift

The most direct risk is to the mortgage itself. NatWest states that not declaring a gifted deposit could affect your mortgage application⁴. A lender that discovers an undeclared gift, or money that was described as savings but turns out to have come from a third party, can treat it as a change in the buyer's circumstances, and in the worst case can withdraw an offer. Which?'s list of mortgage application mistakes makes the same point: gifted deposits need to be properly documented to avoid raising red flags during the application process¹³.

Poor evidence causes delay even where nothing is wrong. A giver who cannot produce ID, or bank statements showing the source of the funds, leaves the solicitor unable to complete anti-money laundering checks, and the purchase cannot complete until they do². This is at its most painful between exchange and completion, when the money is committed and the clock is running.

The tax risks sit with the giver's estate rather than the buyer, but they are real. A gift that was never recorded can be missed from an inheritance tax account years later, and Which? notes that errors around gifts are among the triggers for HMRC investigations²⁶. Equally, a family arrangement that was really a loan, but was papered as a gift to satisfy the lender, stores up a dispute: the letter says no repayment is due, and the giver has signed away any stake in the property². If the family expects the money back, the honest route is to declare it as a loan and accept the lender's assessment of it.

Where a purchase goes wrong for other reasons, the gift is simply the buyer's money and follows the buyer: if a sale falls through before exchange, the deposit funds, including the gifted share, stay with the buyer. The pages on complaints when buying a home and getting your deposit back if a sale falls through cover those situations. For free, impartial guidance on the mortgage side, MoneyHelper, the government-backed money guidance service, is available, and for tax questions HMRC's own guidance and accountants can help with the giver's position.