31st January 2022

Gifted Deposits

The average house purchase price in Scotland in 2021 was £207,778, with buyers having to put down an average deposit of £35,000, and for first time buyers, an average deposit of £57,278. More so, Halifax reported a 23% increase in the average deposits of first-time buyers from £46,449 (2019) to £57,278 (2020).

To visualise this amount of money, if you stacked £57,278 in pound coins, they would reach as high as the Walkie-Talking Building in London … put simply, it can seem incredibly daunting having to save so much to purchase a property.  The deposit required to purchase a home is ever-increasing in Scotland and even more as a first-time buyer. Therefore, it is worthwhile considering how accumulating a sufficient deposit may be done and one way of doing this is known as a “Gifted Deposit”.

What is a Gifted Deposit?

A Gifted Deposit is money given to a homebuyer to help them buy a property. Importantly, unlike a loan, a gifted deposit is given with the understanding that the money will not need to be repaid. Most lenders will accept gifted deposits from more than one Giftor (‘Giftor’ – the person gifting the money). Importantly, the Giftor of the money has no rights or legal interest in the property being purchased.

Who can give a gifted deposit?

As regards who can gift a deposit, lenders are not obliged to accept gifted deposits and they can stipulate who they will and will not accept gifted deposits from. Therefore, it is important to check this with your Lender first. Most lenders will allow gifted deposits from immediate relatives such as parents, grandparents or siblings. However, not all lenders will accept deposits from more distant relatives such as aunts, uncles, cousins or friends.

How much can you give & Inheritance Tax considerations

The amount of money given as a gift is not usually limited, unless the Lender stipulates. However, it is important to remember that depending on the amount, the gift could be subject to Inheritance Tax.

Every person is entitled to an allowance of £3000 which can be gifted to another person and this will be exempt from inheritance tax. Additionally, any unused allowance from the previous year can be carried over. This means that a total of £6000 could be given from one person to another as a gift and not be liable to tax. This is provided that the person gifting the money has not gifted any other money within the previous two years.

If the amount gifted exceeds that of the allowance, the money could be liable to inheritance tax. Inheritance Tax will be due if the Giftor dies within 7 years of gifting the money as it (or at least part of it) will still be regarded as part of their estate If the person who gifted the money passes away after the 7 years, no inheritance tax will be due.

The benefit of gifted deposits

Not only can gifted deposits take a significant burden off the buyer to help them purchase their new home, they also allow the purchaser greater access to a wider range of mortgage options, with lower interest rates and overall lower monthly costs normally being available to borrowers with a larger deposit.

If someone in your family (or a friend) is willing to contribute towards your mortgage deposit, it is important to let your solicitor know, so that they can prepare a ‘Gifted Deposit Declaration Letter’ which will include details about who is receiving the gift, the source of the money, the relationship between the person gifting and receiving the money, and the exact amount of money that is going to be given. The Letter will also confirm that the money is a “gift” and that no repayment is expected, nor will the person gifting the money acquire any legal rights to the property.  If necessary the solicitor will also seek approval of the gift from the lender.

The giftor will also need to produce evidence of the source of the funds being gifted and supply evidence of proof of their identity and proof of their address.

Overall

On the whole, if you are fortunate enough to be in a position to receive a Gifted Deposit, then it can make a considerable difference, not only to the property you may be able to afford, but to your future repayments of the mortgage.

If you have any questions about Gifted Deposits, then please do not hesitate to get in touch with a member of the Residential team working in Aberdeen, Dundee, Edinburgh, Glasgow, Perth and across Scotland.

Kirsty McAuley, Trainee Solicitor
Residential Conveyancing
Blackadders LLP

www.blackadders.co.uk

 

 

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