Why lenders treat gifts carefully
A mortgage lender needs to know that your deposit is genuinely yours and that nobody else has a financial claim over the property. If the money were actually a loan, you would have an extra debt that affects affordability, and if the giver had a stake, they could complicate repossession. That is why the gifted deposit letter and proof of funds matter so much.
The good news is that once those two boxes are ticked, gifts are entirely normal and accepted across the market. Most lenders prefer gifts from close family, though some accept them from a wider circle.
What a gifted deposit letter should confirm
- The amount being gifted and who it's from.
- That it's a gift with no expectation of repayment.
- That the giver retains no legal interest or stake in the property.
- The relationship between the giver and the buyer.
- That the giver is solvent and the funds are legitimately theirs.
- The giver's signature and the date.
Who can usually gift a deposit
Acceptance varies by lender, so always confirm before relying on a particular giver.
| Giver | Typical acceptance |
|---|---|
| Parents | Almost always accepted |
| Grandparents | Almost always accepted |
| Siblings | Usually accepted |
| Aunts, uncles, wider family | Often accepted, lender-dependent |
| Friends or partners (unmarried) | Sometimes accepted, more scrutiny |
| Employer or unrelated third party | Rarely accepted |
A broker can quickly tell you which lenders accept gifts from your specific giver.
Inheritance tax and the seven-year rule
If the giver dies within seven years, the gift may be added back to their estate. Taper relief reduces the tax due on larger gifts over time.
| Years between gift and death | Inheritance tax taper |
|---|---|
| 0 to 3 years | Full 40% rate may apply |
| 3 to 4 years | 32% |
| 4 to 5 years | 24% |
| 5 to 6 years | 16% |
| 6 to 7 years | 8% |
| 7+ years | Usually no inheritance tax |
Taper relief applies to gifts above the available nil-rate band. Most modest gifts fall within allowances. Take advice for large sums.
Proof of funds is part of the deal
Beyond the gift letter, your conveyancer and lender will want to see where the money came from, often bank statements showing the giver built up the funds. Sudden, unexplained deposits can stall your application, so gather the evidence early.
Gifts versus loans, and joint ownership
If family money is really a loan that must be repaid, it is not a gifted deposit and lenders treat it very differently. An undisclosed loan can amount to mortgage fraud, so be honest about what the arrangement is.
Some families prefer to lend formally or to buy jointly rather than gift. A joint borrower sole proprietor mortgage, or a declaration of trust setting out each person's share, can protect everyone's interests, but these change the legal and tax picture, so take advice before deciding.