Don’t make these 5 mistakes when giving a gifted deposit

In 2023, the Bank of Mum & Dad gifted or loaned an estimated £9.4 billion to adult children buying a property. It’s a sum that has almost doubled since 2019, with generous parents and even grandparents keen to help loved ones get a foot on the property ladder.

With mortgage interest rates and property prices staying high this year – and stamp duty becoming more expensive from 1st April 2025 – you may be among a fortunate group of family members able to help fund a deposit.

Although there is no substitute for speaking to a financial adviser, we have assisted buyers who have the Bank of Mum and Dad on their side. There are five common mistakes that can be made but they are easily avoided with consideration.

1. Avoid loaning the deposit

The Bank of Mum and Dad can act in two ways: loan their children a sum of money with the intention that it is repaid, or gift the money with no obligation to pay it back. Mortgage lenders are usually more comfortable dealing with buyers who have a gifted deposit and may refuse lending if any money is loaned by a parent (it will be considered as another debt against the buyer).

2. Check your relative status

Mortgage lenders are more likely to accept a gifted deposit if it is supplied by the Bank of Mum and Dad but if you’re not a parent, it is worth asking about qualification at the outset. Some lenders will only accept gifted deposits from immediate family or blood relatives, prohibiting aunts, uncles and god parents from helping. 

3. Don’t have any interest in the property

Those going the extra mile by either going on the mortgage (up to four people can be joint applicants) or by being listed as a legal owner on the house deed (up to four names can appear on the deed) as well as contributing money may find their generous gesture thwarted. A mortgage lender will not accept a gifted deposit if the donor has any kind of stake or interest in the property.

4. Watch your tax situation

While there is no limit on how big a gifted deposit can be, those providing financial assistance may unintentionally land the buyer with a tax bill. Gifted deposits of £3,000 are generally tax free (or up to £6,000 if the donor is rolling over unused allowance from the previous year). Give more and the gift amount could be subject to inheritance tax should the donor die within seven years of making the gift.

5. Protect the gift

If you plan to gift a deposit but the beneficiary is making a joint purchase, there are ways to protect the gift. If those who co-own the property go their separate ways, a deed of trust drawn up by a solicitor will ensure your beneficiary retains ownership of the money they put in when the property is sold. This arrangement is wise if the purchase is being made by friends or with a partner. 

Gifted deposit checklist

If you are planning to gift a deposit this year, ensure you prepare in advance by:

• Checking that the buyer’s chosen mortgage lender accepts gifted deposits

• Checking your relationship with the buyer meets the lender’s qualifying criteria

• Complete and sign a gifted deposit letter 

• Prepare proof of funds by providing a bank statement

• Prepare to supply photo ID and proof of address for anti-money laundering checks

If you need further advice about supporting a property purchaser you are related to, please give our sales team a call.