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What are Gifted Deposit Solicitor Checks?

Adele MacGregor

Written by

27th Oct 2022 (Last updated on 1st Dec 2022) 5 minute read

If you are buying a property with a gifted deposit, there are checks that your solicitor will need to do. These include ID checks, proof of the source of funds and a gifted deposit declaration.

A gifted deposit
is a financial gift which covers part or all the deposit for a home. It is usually supplied by a family member. With many struggling to save for a mortgage deposit, these have become more common.

Below we look at the checks required when a gifted house deposit is being used. This includes the identification of the gifter, the source of funds and the role of the solicitor.

This article will cover the following:
  1. What are Gifted Deposit Checks?
  2. Gifted Deposit Declaration
  3. Proving ID
  4. Source of Funds
  5. Why Do Solicitors Ask About Gifted Deposits?
  6. Gifted Deposit Solicitor Fee
  7. Inheritance Tax Rules
  8. How Else Can Family Help?
  9. How Can Compare My Move Help?
  10. FAQs

What are Gifted Deposit Checks?

These checks are completed by a conveyancing solicitor. This is whether only part of the deposit is a gift, or the whole deposit is gifted. The checks are to ensure the gift is legitimate and above board.

Solicitors must check the gifter's ID and the source of funds. This is to meet their internal Anti-Money Laundering procedures.

Gifted Deposit Declaration

The gifted deposit declaration is a letter which is written by the gifter. It needs to be in a certain format to meet the criteria and be accepted.

The letter will need to declare the amount they are gifting. It is also their agreement that they do not expect repayment. They also cannot lay claim to a beneficial interest or right to the property. The letter must be signed by the gifter and sent to your solicitor.

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Proving ID

The gifter must provide documents to back the details in the letter of declaration. These are to prove their ID and include:

  • Photo ID in the form of a passport or full driver's license
  • Proof of address (such as a bank statement, HMRC letter or utility bill)

You will need to check with your solicitor if they want copies or originals of these documents.

The gifter needs to give your conveyancer documents to back the statements in their letter of declaration. These are to prove their ID and include:

  • Photo ID in the form of a passport or full driver's license
  • Proof of address (such as a bank statement, HMRC letter or utility bill)

You will need to check with your solicitor if they want copies or originals of these documents.

Source of Funds

As part of the checks undertaken by your solicitor, they will need to be made aware of the source of funds. Bank statements are reviewed to check how the funds have been accumulated. These will usually need to date back 6-12 months.

If the money has come from selling assets, paperwork documenting this must be provided.

Why Do Solicitors Ask About Gifted Deposits?

Gifted deposits must be checked by solicitors to ensure the funds are legitimate. This is to ensure there is no money laundering involved. It is also to protect all parties involved and have full clarity on what the gift is for.

When to Inform the Solicitor of the Gifted Deposit?

You should inform your solicitor about a gifted deposit as soon as possible. It is a crucial part of buying the house and the checks will need to be done at the earliest convenience to avoid delays or issues during the transaction.

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Gifted Deposit Solicitor Fee

Some solicitors may charge an additional fee for handling a transaction with a gifted deposit. You should ask your chosen solicitor if the work is included in their quote or if there is an extra cost.

The additional amount will depend on your solicitor but on average ranges from £50-£100.

For more information on conveyancing costs when buying a house see: Solicitors Fees for Buying a House UK

Inheritance Tax Rules

There is no direct tax on a gifted deposit, but, it can be taxed in the form of Inheritance Tax (IHT). If the person gifting the money dies within 7 years, you may be liable to pay an Inheritance Tax on the amount.

How much you pay will depend on the years between giving the gift and the death of the gifter. Less than three years and you with be expected to pay 40% Inheritance Tax. This decreases over time up until 7 years when the amount is 0%.

Years between gift and death% of IHT

Under 3

40%

3-4

32%

4-5

24%

5-6

16%

6-7

8%

7 or more

0%

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How Else Can Family Help?

If a family member is not in a position to gift money, there are alternatives to help get you on the property ladder. These include:

Guarantor Mortgages

A guarantor mortgage is when a family or friend agrees to guarantee to make the mortgage repayments if you cannot for any reason.

Family Springboard Mortgages

A family member provides the deposit which is put into a savings account linked to the mortgage. The funds must be left in the account for a certain amount of time but they can earn interest on the amount.

Joint Mortgages

A joint mortgage is where a mortgage is taken out by more than one person. A family member can take out a mortgage with you, however, be aware if they already own a home it would count as a second home. As a result, it would be subject to additional stamp duty.

    If you need financial help buying, renting or moving house, see our article: Financial Help Moving House

    How Can Compare My Move Help?

    Compare My Move can match you with up to 5 local conveyancers in your area, saving you both time and money. They can assist with your property transaction, including if the deposit is gifted.

    We can also match you with surveyors and removalists, saving you money during your moving journey.

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    FAQs

    Can a Friend Gift Me a Deposit?

    In some cases, yes but be aware that mortgage lenders are more cautious with gifts from friends. This is largely due to the increased risk of money laundering. It also invites the risk of an unrelated individual laying a claim to the property in the future. As a result, you may be limited with your choice of lender.

    Do I Have to Tell My Mortgage Lender?

    Yes, your mortgage lender will need to be aware if all or part of the deposit has been gifted. They will need to be notified during the mortgage application. They will also need a letter from the gifter stating that it is not a loan nor will they lay claim on the home at any point.

    What Happens If They Want to Loan Not Gift?

    If a family member wants to give a loan, not a gift, this must be declared to the mortgage lender and conveyancer.

    When all or part of the deposit is gifted, there should be no expectation of repayment or any claim on the property. This must be laid out clearly in the gifted deposit letter.

    A loan is treated differently from a gift as it is to be paid back. As a result, it doesn’t fall under the same regulations as a gifted deposit.
    Adele MacGregor

    Having worked at Compare My Move for over four years, Adele covers topics such as the conveyancing process across the UK, property surveys, home moves and storage.

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