Gifted Deposits for Mortgages

Ask the Expert

“I am 75, and my 26-year-old grandson and his girlfriend are looking to buy their first home. I would love to help them out by gifting them the deposit for a house. Am I able to do this without being taxed?”

Carl responds:

The average house price has increased by nearly 10% in the last 12 months alone (Office for National Statistics). This is great news for homeowners, but problematic for those looking to get on the property ladder. Lenders may be willing to lend anything between 60-95% of the property value; however, the higher the proportion loaned, the higher the interest rate is likely to be.

Gifting part of, or a full deposit to your grandson could help him gain access to better mortgage deals and lower monthly payments – making day-to-day life more affordable. However, if you expect your grandson to pay the money back, the mortgage lender will consider this as a loan rather than a gift, and they may factor this into the affordability checks.

You may wish to protect your gift with a declaration or deed of trust. This states the money was gifted so if your grandson and his girlfriend split up or have disagreements, the money will remain the property of your grandson.

You will not have to pay tax on gifting a house deposit to your grandson as this would be classed as a Potentially Exempt Transfer (PET). This means that your grandson may be liable to pay Inheritance Tax (IHT) on the gifted amount if you pass away within seven years of gifting the money, and your estate is worth over £325,000 – including the deposit. The first £3,000 that you gift in a tax year is exempt from tax, and if no gift was made in the previous tax year, then the exemption can be carried forward for one year – meaning that £6,000 will be exempt from tax. This is known as your annual exemption.

I would recommend speaking to an Independent Financial Adviser to ensure you can afford the lump sum. A Financial Adviser can help you structure your finances in the most tax-efficient way. This may include making the most of your personal allowances for Capital Gains Tax, Dividend income, and contributions into ISAs, pensions, and other savings accounts.

Any opinions expressed in this article do not constitute advice. They assume the 2021/22 tax year and may be subject to change. The Financial Conduct Authority does not regulate Tax, Trust, and Estate Planning.