A gifted deposit refers to a sum of money given to a buyer, usually by a family member, to help them purchase a property.
A gifted deposit acts as part or all of the deposit required for the mortgage. When it comes to gifted deposits in Scotland, there are several considerations and rules to keep in mind:
What is a Gifted deposit letter?
Mortgage lenders will typically require a written confirmation from the person giving the gift. This is known as a gifted deposit letter and should state:
- Their name
- Your name
- The amount of the gift.
- A clear statement that the money is a gift
- An acknowledgment that the gifter has no rights to the property and will not seek repayment or stake a claim to the property in the future.
The gifted letter should also be notarised and signed by an independent witness.
Be aware that each lender will have their own rules about who can and who can’t gift you a deposit, so check with your preferred lender at an early stage to make sure they will accept the source of your deposit.
Why do i need to prove the source of the funds?
To prevent money laundering and ensure the money’s legitimacy, lenders may request evidence of the source of the funds. This could be in the form of bank statements or documentation related to the sale of assets.
What are the implications for someone giving a gifted deposit?
- Impact on benefits: For the gifter, particularly if they’re elderly, giving away a significant sum of money might affect their entitlement to means-tested benefits or local authority contributions to care costs.
- Inheritance Tax: While a gifted deposit can be considered part of the gifter’s tax-free annual gift allowance, larger amounts might potentially affect the inheritance tax liability upon the gifter’s death. However, if the gifter survives for seven years after making the gift, it typically will not be considered part of their estate for inheritance tax purposes.
- Potential Future Claims: It’s important to note that if the gifter ever faces financial difficulties, their creditors might view the gifted deposit as an asset, unless it’s clear in legal terms that the money was a gift and not a loan.
What are the implications for the recipient of a gifted deposit?
- Mortgage Acceptance: While a gifted deposit can enhance a buyer’s chances of mortgage approval by increasing the available deposit, lenders will still conduct their usual checks on affordability and creditworthiness.
- Shared Ownership: If considering a shared ownership property, some housing associations might have rules about using gifted deposits.
Conclusion
Gifted deposits can be a great way for family members to support first-time buyers or those moving up the property ladder. However, both parties should be aware of the regulations and potential tax implications. It’s always advisable to seek legal and financial advice when considering or giving a gifted deposit.
Make sure to inform your solicitor about any gifted deposit to ensure all regulations are complied with and all legal documentation accurately reflects the source of the funds.