Gifted Deposits 2026: How the Bank of Mum & Dad Actually Works

What actually counts as a "gifted deposit"

A gifted deposit is simply a lump sum — most often from a parent or grandparent — put towards your house purchase that you will never have to pay back. It's not a loan, it doesn't come with interest, and the person giving it doesn't end up owning any part of the property. Most UK lenders are comfortable with this arrangement; family gifts are one of the most common ways first-time buyers reach the deposit they need, particularly where house prices have outpaced wage growth.

Where people run into trouble isn't usually the principle of gifting money — it's the paperwork and the small print. Lenders need to be completely satisfied that the money is a genuine, unconditional gift, that it isn't a disguised loan, and that it hasn't come from a source that raises money-laundering concerns. That's what the rest of this guide walks through.

What your lender will actually ask for

The gift letter

Almost every lender will insist on a signed gift letter before they'll release funds. Your lender or broker can usually supply a template, but across the major UK lenders the letter typically needs to confirm:

• The donor's full name, address, and their relationship to you (the buyer)
• The exact amount being gifted and the address of the property it's going towards
• A clear statement that the money is a gift, not a loan, with no expectation of repayment
• Confirmation that the donor will not acquire any legal or beneficial interest in the property as a result
• A statement that the donor is solvent and the gift won't leave them in financial difficulty
• The donor's signature (some lenders also want it witnessed)

Your conveyancing solicitor will also check this letter independently, because they carry their own legal duty under anti-money-laundering regulations to be satisfied the money is legitimate — separate from whatever checks your lender does.

Proof of funds from the donor

Expect the donor to be asked for photo ID, proof of address, and several months of bank statements showing where the money came from and that it wasn't, for example, a short-term loan taken out specifically to fund the gift. Any unusually large or unexplained credits on those statements tend to trigger follow-up questions. If the money is coming from overseas, lenders and conveyancers typically ask for additional evidence: foreign bank statements, certified translations where documents aren't in English, and records of the currency transfer. The safest approach is always a traceable bank transfer, well ahead of completion — never cash.

Who the money can come from

Parents and grandparents are the donors lenders are most relaxed about. Siblings and other close relatives are usually fine too, and some lenders will accept gifts from friends provided the usual conditions are met. Where it gets harder is money from anyone the lender can't easily categorise as "family" — some lenders will accept it with extra scrutiny, others simply won't allow it as a gifted deposit at all. If your gift isn't coming from a parent or grandparent, it's worth checking that specific lender's policy, or using a broker who already knows which lenders are flexible, before you get too far into the process.

Does a gifted deposit affect your mortgage?

A gift doesn't change how a lender assesses what you can afford to borrow — that's still based on your income, outgoings, and existing debts. What it does change is your loan-to-value (LTV) ratio: putting down a bigger deposit means you need to borrow a smaller percentage of the property's price, which typically opens up cheaper interest rates and a wider range of deals. In other words, a gifted deposit can get you a better mortgage, but it won't get you a bigger one.

Common reasons lenders reject a gifted deposit

Most rejections and delays come down to a handful of recurring issues:

• The gift letter is incomplete, unsigned, or missing the lender's required wording. Use the lender's own template where one exists.
• The source of funds can't be clearly evidenced. Large, unexplained deposits in the donor's account are the single most common cause of delay.
• The donor's relationship to the buyer doesn't fit that lender's policy — for example, a gift from a friend or an unrelated third party.
• There's an undisclosed expectation of repayment or a stake in the property. If this comes to light later, the lender can treat it as misrepresentation.
• The gift is disclosed too late — part way through underwriting, rather than at the start of the application — which can stall or restart the process.
• Funds arrive in cash, or via a route that's hard to trace, rather than a standard bank transfer with a clear paper trail.

Gift or family loan: the key differences

Not every family contribution is meant to be a straightforward gift. Some families prefer a structured loan, often with its own legal agreement, so the money can eventually be repaid. The two routes are treated very differently by lenders, conveyancers and HMRC.

If you're not sure which route fits your situation, a mortgage broker can tell you which lenders accept each structure and how it will be assessed — this is one area where getting advice before you apply saves a lot of back-and-forth later.

Does gifting a deposit affect the giver's tax position?

This is the part that catches people out, because the tax implications sit with the giver, not the buyer. In the UK, there's no tax charge for simply receiving a gift, however large. The potential issue is inheritance tax (IHT) on the donor's estate.

The seven-year rule, in plain terms

HMRC treats a cash gift like this as a "potentially exempt transfer" (PET). If the donor lives for seven full years after making the gift, it drops out of their estate entirely and no inheritance tax is ever due on it. If they die within those seven years, the gift may be pulled back into the calculation of their estate for IHT purposes — but only if their total estate, including gifts made in the previous seven years, exceeds the nil-rate band, which is currently £325,000. That threshold has been frozen since 2009 and, following the Autumn Budget 2025, is now fixed at this level until at least April 2031.

If tax does become due, the rate depends on how long before death the gift was made. Gifts made within three years of death are taxed at the full 40% rate (on the amount over the threshold). Beyond that, "taper relief" reduces the rate on a sliding scale:

• 3–4 years before death: 32%
• 4–5 years before death: 24%
• 5–6 years before death: 16%
• 6–7 years before death: 8%
• 7+ years before death: 0% — the gift is fully outside the estate

Two things are worth stressing because they're widely misunderstood. First, taper relief only ever reduces the rate applied to the amount above the nil-rate band — if the gift (combined with any others made in the same seven years) stays under £325,000, there's no tax to taper in the first place. Second, any inheritance tax that is due is normally paid out of the donor's estate, not by the person who received the gift, unless the estate's own assets aren't enough to cover the bill and cumulative gifts pushed the total over the threshold.

Separately, everyone has an annual gift allowance of £3,000 that's immediately exempt from all of this, and if the previous year's allowance wasn't used, it can be carried forward once — giving a possible £6,000 in one tax year with no seven-year question attached at all. Regular gifts made out of a donor's genuine surplus income, rather than a one-off lump sum, can also qualify for a separate, unlimited exemption, though that typically applies to ongoing contributions rather than a single deposit-sized payment.

A straightforward gift isn't a "gift with reservation"

HMRC has separate, stricter rules for a "gift with reservation of benefit" — broadly, where someone gives something away but keeps using or benefiting from it, like a parent gifting their home but continuing to live in it rent-free. A simple cash gift towards a deposit, where the donor has no ongoing claim on the money or the property, doesn't fall into this category. The seven-year PET rules above are what apply instead.

Getting it right, step by step

1. Agree the amount and the source early, and check with your broker or lender what they'll accept before you fall in love with a property.
2. Ask for the lender's own gift letter template if they have one — it saves drafting something that gets rejected for missing a clause.
3. Get the letter signed by the donor, and pass a copy to your conveyancer as early as possible, not at the last minute before exchange.
4. Transfer the money by bank transfer, not cash, ideally weeks ahead of completion, so there's a clean paper trail.
5. Have the donor's proof-of-funds documents ready — ID, address, and statements covering the relevant period — before anyone asks for them, to avoid delays.
6. Disclose the gift upfront, not partway through underwriting, and flag immediately if any part of it is actually meant to be repaid.

Frequently asked questions

This guide is for general information only and doesn't constitute financial, legal or tax advice. Mortgage lending criteria and tax rules can change, and individual circumstances vary — always check current terms with your lender, conveyancer, or a regulated mortgage broker, and speak to a qualified tax adviser about any inheritance tax exposure, before making decisions about a gifted deposit.