Gifted Deposit Letter, What It Says and Why It Matters

If a parent, grandparent or other family member is helping with your deposit, your mortgage lender will require a gifted deposit letter. The lender's concern: is the money genuinely a gift, or is it a hidden loan that the giver will eventually want back? If it's a loan, that affects your affordability and your ability to repay the mortgage. The letter formally confirms the gift status, and there are also tax and family implications worth understanding before signing.

What lenders typically require

Standard requirements for a gifted deposit letter:

• Identity of the giver, full name and relationship to the buyer.
• Amount of the gift, specific figure.
• Confirmation it's a gift, not a loan, explicit wording that no repayment is expected.
• Confirmation no interest in the property, the giver acknowledges they have no legal or beneficial interest in the home.
• Source of the funds, usually a brief explanation of where the money came from (savings, sale of property, etc.) for anti-money-laundering compliance.
• Signature of the giver, sometimes witnessed, depending on lender.
• Proof of source funds, bank statements showing the money was the giver's, often required by the conveyancer.

Standard wording

Most lenders accept a fairly standard letter format. Typical wording:

• "I/We, [Giver name(s)], confirm that I am/we are gifting £[amount] to [Buyer name(s)] toward the purchase of [property address]."
• "This is an unconditional gift. No repayment is expected or required from [Buyer name(s)]."
• "I/We confirm that I/we will have no interest, legal or beneficial, in the property."
• "The funds originate from [source, e.g. savings, inheritance, sale of property at address X]."
• "Signed: [Giver name], date."

Copy-and-paste gifted deposit letter template

Here is a complete example letter you can adapt. Check whether your lender has its own form first, many do, but where a letter is accepted, this format covers everything they look for:

Some lenders also ask for the letter to be witnessed or countersigned, and almost all will want the giver's ID and bank statements alongside it, covered in the source of funds section below.

Why the 'no interest in the property' wording matters

This is the most legally significant line. By signing, the giver formally waives any claim to the property, they can't later say 'but I paid for part of it, I want a share'. The lender's security is the property; they need certainty that no third party has a claim against it.

This is also why many families specifically prefer JBSP arrangements or co-ownership over gifted deposits when the giver wants to retain SOME claim, those structures formally recognise the giver's interest, whereas a gifted deposit letter formally extinguishes it.

Inheritance Tax, the 7-year rule

Gifts above certain thresholds can have Inheritance Tax implications:

• £3,000 annual gift allowance per giver, IHT-exempt automatically.
• Wedding gifts have higher allowances: £5,000 from parents, £2,500 from grandparents.
• Larger gifts are 'potentially exempt transfers', IHT-free if the giver survives 7 years after the gift. If they die within 7 years, IHT may apply (reducing on a sliding scale after year 3).
• For most deposit gifts, typically £10,000-£100,000, the 7-year rule applies. Worth tracking the date for the giver's estate planning.

Gift vs loan, the formal distinction

What separates a gift from a loan for mortgage purposes:

• Gift: no repayment expected, no interest in the property, no formal acknowledgement of debt. Lender treats this as part of the buyer's deposit.
• Loan: repayment expected (even informally), records exist of the obligation. Lender either declines the loan, treats it as a monthly commitment, or requires the loan to be formalised and may decline the mortgage if it materially affects affordability.
• Mixed arrangement: family money described as gift but with verbal understanding of repayment. This is a misrepresentation to the lender, risky for everyone.

Source of funds, anti-money-laundering

Beyond the lender's check, your conveyancing solicitor will run anti-money-laundering checks on the gifted funds. Typical evidence they'll want:

• Recent bank statements from the giver showing the funds.
• Source documentation, e.g. recent property sale evidence if the gift comes from a sale; inheritance documentation; long-term savings history.
• Photographic ID and proof of address for the giver.
• Sometimes additional documentation if funds come from overseas accounts or unusual sources.

Practical timing

Get the gift sorted early in the process:

• Have the gifted deposit letter signed and ready before your full mortgage application, lenders ask for it during underwriting.
• Transfer the funds at least 1-2 months before purchase, keeps the bank statement evidence clean.
• Brief your conveyancer at first contact, they have AML requirements to satisfy too.
• Consider whether to formally document the gift for IHT planning, a properly dated and witnessed letter starts the 7-year clock cleanly.

Gifted deposits are one of the most common ways families help buyers onto the ladder, but the paperwork needs to be right for both the mortgage and the longer-term tax position. Debbie at DS Financial handles dozens of gifted-deposit cases each year and can guide both you and the giver through the requirements, including coordinating with your conveyancer.

General information, not financial advice. Your home may be repossessed if you do not keep up repayments on your mortgage.

Sources: MoneyHelper, Gifted deposits, HMRC, Inheritance Tax and gifts, FCA, Mortgage rules.