Gifted deposits and mortgages: rules and paperwork

A gifted deposit is money given to you, usually by a close family member, with no expectation of repayment and no claim on the property. Lenders accept them routinely, but they will ask for a signed gift letter from the donor, proof of the donor's identity and address, and evidence of where the money came from. Your conveyancer runs a separate anti money laundering check on the same funds. Start collecting this paperwork early, because it is one of the most common causes of last-minute delay.

A gift is unconditional. The donor gives you the money, cannot ask for it back, and gets no share of the property and no right to live there.

If any of those conditions fail, it is not a gift. A relative who expects the money back when you sell is making a loan. A relative who wants a share of the equity is making an investment. Both of those change your mortgage application significantly, and a handful of lenders will accept a documented family loan while most will not, because the repayment reduces your affordability and the lender's security position becomes unclear.

Do not describe a loan as a gift on the paperwork. The declaration is a formal statement, your conveyancer relies on it, and misrepresenting it to obtain a mortgage is fraud.

Most lenders are comfortable with parents, step-parents, grandparents, siblings and children. Many extend to aunts, uncles and sometimes a spouse or civil partner's family.

Beyond that it varies a lot. Gifts from friends, employers, distant relatives or an ex-partner are accepted by some lenders and refused flat by others. A gift from the seller, or a builder's deposit contribution on a new build, is treated as a vendor incentive rather than a deposit, and lenders usually deduct it from the purchase price when calculating loan to value. On a 250,000 pound new build with a 5% builder incentive, the lender may work to 237,500 pounds instead, which quietly changes your loan to value.

If your donor is anything other than an immediate family member, tell your broker at the start rather than at the application stage. It narrows the lender list, and that is far easier to plan for than to fix.

Nearly every lender has its own template, but a gift letter almost always confirms:

• The donor's full name, address and relationship to you.
• The exact amount being gifted.
• That the money is a gift and is not repayable, in any circumstances.
• That the donor retains no interest, legal or beneficial, in the property.
• That the donor is not being paid, and is not a party to the purchase.
• That the donor is solvent and not subject to bankruptcy proceedings.
• The donor's signature and the date.

Where there are two donors, for example both parents, both usually need to sign. If the donor is married and the money comes from a joint account, expect both account holders to be asked to sign even if only one is your relative.

This surprises people. The donor has to prove who they are and where the money came from, to both the lender and your conveyancer, and the two checks are separate.

Typical requirements are a photo ID such as a passport or driving licence, a proof of address dated within the last three months, and bank statements showing the money in the donor's account. Where the sum is large or has appeared recently, expect follow-up questions and be ready to evidence the origin: a house sale completion statement, a pension lump sum letter, an ISA closure statement, a probate or inheritance document, or an investment sale contract note.

Cash is the hardest case. Money that was withdrawn and held physically, or that arrived in a series of unexplained deposits, is very difficult to evidence and conveyancers will often refuse it outright. If a relative has savings in cash at home, get it into a bank account with a clear paper trail as early as you can, ideally six months or more before you buy.

Money held abroad adds another layer. Overseas gifts are accepted by many lenders but require evidence of the funds in the foreign account, the transfer, and sometimes translated documents. Allow extra weeks.

There is no universal rule, but the practical guidance is to have the gift sitting in your own account, with a clean explanation, well before your full application. Three to six months of visible history removes almost all friction.

If that is not possible, it is still workable. Just accept that the underwriter will ask, and have the gift letter, the donor's statements and the source evidence ready to send the same day. A gift that lands in your account two days before exchange, with no letter prepared, is how completions slip by a fortnight.

This is where people get nervous, and mostly they do not need to. The important points are general, and anything significant deserves proper advice from a tax adviser or solicitor.

Gifts between individuals are generally treated as potentially exempt transfers. If the person who gave you the money lives for seven years after making the gift, it normally falls outside their estate for inheritance tax purposes entirely. If they die within seven years, the gift may be brought back into the estate calculation, and taper relief can reduce the tax due on gifts made more than three years before death.

There are also annual and specific exemptions, including a modest yearly gifting allowance and larger exemptions for gifts in consideration of marriage. Thresholds, allowances and reliefs change with policy, so check the current rules on GOV.UK.

Two things worth being clear about. First, inheritance tax is a matter for the donor's estate, not for you as the recipient, and receiving a gift does not create an income tax charge on you. Second, the lender does not care about the seven-year rule. It is asking about the gift for anti money laundering and affordability reasons, not tax ones. Many families make gifts precisely to reduce a future estate, and that is entirely normal.

The temptation is obvious. A parent lends you 20,000 pounds, everyone signs a gift letter, and you both privately agree you will pay it back.

The problem shows up later. If your relationship with the donor breaks down, if you separate from a partner, or if the donor becomes bankrupt, the written declaration is what a court works from. A donor who signed away all interest cannot easily claim it back. Equally, an undisclosed repayment obligation sitting outside your affordability assessment can leave you genuinely unable to pay both.

If the family intention really is a loan, say so and let your broker find a lender that accepts a documented family loan, or structure it as a declaration of trust so the donor's share is properly recorded. There are honest routes to nearly every arrangement people try to hide.

Getting this right at the start costs you an afternoon of paperwork rather than a delayed completion. A broker who has processed gifted deposits before will know which lenders are relaxed about your donor's circumstances, and you can find an FCA-authorised one through the MortgageMatch directory.