Gifted deposits and the parents giving them
A gifted deposit puts a second household's finances on your file. What the lender needs from the parents, what the gift does to their estate and retirement, and how to introduce them.
A gifted deposit puts a second household's finances on your file. What the lender needs from the parents, what the gift does to their estate and retirement, and how to introduce them.
When a buyer's deposit comes from their parents, your file holds facts about two households. The buyer is your client. The parents are giving away money that was saved for something, often their own retirement, and the gift has tax consequences for their estate.
The parents may not have taken advice on the gift or on how it affects their own plans, and you are in contact with them when they make it.
Lenders accept gifted deposits with conditions, and each lender sets its own. Expect to need the following.
The conveyancer will carry out their own checks on the source of funds. Gathering the parents' documents early avoids delay at the end of the case.
A gift to a child is a potentially exempt transfer for inheritance tax. If the giver lives for seven years after making it, the gift falls outside their estate. If they die within seven years, the gift is counted in the estate. Where the gifts made in the seven years exceed the nil-rate band, tax may be due on the gift, reduced by taper relief where the gift was made more than three years before death.
Some gifts are exempt from the start. Each person can give £3,000 a year under the annual exemption and carry forward one unused year. A parent can give £5,000 to a child in consideration of the child's marriage or civil partnership. Regular gifts made from surplus income, which leave the giver's standard of living unchanged, are exempt if they meet the conditions.
From 6 April 2027, unused pension funds will also count towards the estate for inheritance tax. For parents with a pension of any size, that changes the estate the gift is measured against.
Each source of a gift is its own advice question.
Whether the parents keep enough for their own needs afterwards.
Selling them may create a capital gains tax bill, and which ones to sell is an investment decision.
Taking it is irreversible and affects the parents' retirement income.
A lifetime mortgage on the parents' home to fund the gift is a later-life lending decision and an estate decision together.
You can arrange the buyer's mortgage and, where you hold the permissions, any lending for the parents. The advice on whether the gift is affordable and how to fund it is pension, investment and estate planning advice, which Equity & General gives.
A gift made in a parent's fifties or sixties comes out of money that could have provided retirement income for twenty or thirty years. The parents may have done the sums. They may also be giving what they can afford today without a view of what they will need later.
A planner can show the parents what their retirement looks like with and without the gift, and whether a smaller gift, a gift spread over several years or a loan would suit them better. That conversation belongs with the parents and a planner, separately from the buyer's mortgage.
Families sometimes consider alternatives to a gift. A loan to the buyer may be acceptable to some lenders if it is declared and affordable, and it keeps the money in the parents' estate. A parent named on the title as a joint owner takes a share of the property, which can bring the higher rates of stamp duty land tax into play if the parent owns another home. A joint borrower sole proprietor mortgage adds the parent to the loan without adding them to the title.
Each option has lending consequences, which you can advise on, and tax and estate consequences, which a planner and a solicitor advise on. Set out the lending options for the buyer, and offer the parents an introduction for the rest.
The parents are not your clients unless they become so. To introduce them to Equity & General, you need their own consent, taken from them directly. A buyer telling you their parents would like advice is not enough. Call the parents, explain who Equity & General is and what happens next, and record their agreement.
Keep the two households' information apart. The planner advising the parents does not need the buyer's file, and the buyer does not need to know what the parents discuss with their planner.
Raise it when you speak to the parents about the gifted deposit letter. Explain what the lender needs, then make the offer once.
A form of words: "A gift this size can affect your own retirement and how your estate is taxed. Those are questions I do not advise on. I work with Equity & General, whose planners do. Would you like one of them to call you?"
No. Whether a gift is affordable and how it affects the parents' estate is financial planning advice. You can explain what the lender needs and offer the parents an introduction to a planner.
They need to consent to the introduction themselves. They do not need to have a mortgage with you.
Then the parents are making a pension decision, which is irreversible once the money is drawn. Offer them an introduction before they take it out, and record that you did.
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