Gifted Deposit and Gifted Equity Explained — Helping a Family Member Buy a Property

Gifted Deposit vs Gifted Equity

These two terms are often confused:

Gifted deposit: A cash gift from a family member (most commonly parents) used towards the deposit on a property purchase. The buyer is purchasing a property on the open market.

Gifted equity: A discount given by a seller (usually a family member) on the sale price of a property they own. The buyer pays less than market value; the “gift” is the difference between market value and the sale price.

Both approaches help buyers get onto the property ladder, but they work differently and have different mortgage, tax, and legal implications.

Gifted Deposit — How It Works

The donor (usually a parent) transfers cash directly to the buyer’s solicitor’s client account or to the buyer before exchange. The funds then form part of the deposit at completion.

What lenders require:

Every mortgage lender will ask for evidence of the gift. Requirements typically include:

• A signed gifted deposit letter (provided by the donor) stating: the amount gifted, that it is an outright gift with no expectation of repayment, that the donor does not require a charge over the property, and confirming the donor’s relationship to the buyer
• Bank statements showing the funds leaving the donor’s account (anti-money laundering requirement)
• Some lenders also want to see the source of the donor’s funds (e.g. where the money came from: savings, inheritance, sale of property)

Why lenders insist on “no repayment”:

If the gift were treated as a loan, it would be an undisclosed liability affecting the buyer’s affordability and the lender’s security position. Declaring a gift as a loan is mortgage fraud.

Gifted Equity — How It Works

A family member sells their property to the buyer at below market value. The discount represents the gifted equity.

Example: Parent’s property is worth £300,000. They sell to their child for £240,000. The £60,000 discount is the gifted equity. The child’s lender treats the property as worth £300,000 and may lend against the full value, potentially allowing a purchase with no additional cash deposit.

Valuation: The lender will instruct an independent surveyor to value the property at market value. The gifted equity is the difference between that value and the purchase price.

Solicitor requirements: Your solicitor must ensure the transaction is properly documented and that both the seller and buyer understand the gift. The seller will need independent legal advice.

Inheritance Tax on Gifts

A gift of money or property equity during the donor’s lifetime may have inheritance tax implications:

• Gifts made more than 7 years before death are fully exempt (potentially exempt transfers)
• Gifts made within 7 years of death may be subject to IHT on a sliding scale (taper relief)
• For large gifts, the donor should complete a “Potentially Exempt Transfer” record

The annual gift exemption (£3,000 per tax year) is too small to be relevant for most property deposits. However, gifts out of income, gifts on marriage/civil partnership (up to £5,000 from a parent), and normal expenditure out of income exemptions may apply.

Capital Gains Tax on Gifted Equity

When a property is sold at below market value to a connected person (such as a family member), HMRC treats the transaction as occurring at market value for CGT purposes. The seller must calculate any CGT gain based on the full market value, not the discounted sale price.

If the property being sold is the seller’s main residence, Private Residence Relief will typically eliminate any CGT liability.

Protecting the Gift

If the buyer is purchasing with a partner, the gifted funds may be at risk if the relationship subsequently breaks down. A declaration of trust recording the parent’s contribution as a beneficial interest — to be returned first from any sale proceeds — provides legal protection for the gift without the parent needing to be on the title.

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