If you’re looking for a way to support your loved ones in their quest to get onto the property ladder, a gifted deposit can be a simple way to help them. Whether you cover their entire deposit requirement or simply reduce the amount that they need to contribute from their own savings, it’s often a welcome leg up onto the perpetually distant first rung.
But is there a limit to how much you can financially contribute to someone else’s mortgage? We look at the implications of gifting towards a mortgage for both the gifter and the recipient.
Is there any limit on how much can be gifted for a mortgage deposit?
In theory, no, there isn’t. You can gift as much towards a mortgage deposit as you want to, so long as you’re willing to confirm in writing that the funds are indeed a gift and will not require repayment.
However, larger cash gifts could be liable for tax unless there is an exemption based on the recipient-donor relationship or based on the purpose of the gift.
How much can someone gift without being liable for tax?
HMRC allows everyone an annual exemption that they can gift tax-free, which is currently £3,000. However, it’s important to keep in mind that not only cash is seen as a gift, your exemption limit also applies to:
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Property
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Possessions
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Loss in value - for example, if you sell property to someone at a discount on the market value
It’s also important to note that the £3,000 limit is not per person; it’s a total allowance, so you couldn’t gift a couple taking out a joint mortgage £3000 each tax-free, for example. However, you can roll over your exemption once if you don’t gift any money in a year, so you could give £6000 by using 2 years’ exemptions at one time.
Kellie Steed - Content Writer
Are there any scenarios where cash gifts are tax-free?
There are two specific circumstances where you could potentially gift more than £3,000 towards a mortgage deposit without being liable for tax, which are:
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Wedding or civil ceremony gifts up to the value of £5,000 are tax-free if you’re gifting to your children, so giving the gift under these circumstances would allow you to make a larger donation towards a mortgage deposit without any tax liability. This only applies to parents, however, grandparents and other relatives have a lower exemption limit
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Gifts to your spouse are never liable for tax, so if you’re helping a partner get onto the property ladder, you can gift them an unlimited amount towards their deposit, assuming the mortgage lender has no criteria that prevent this
Do mortgage borrowers have to pay tax on a gifted deposit?
If you are gifted a deposit that exceeds £3,000, it may be subject to income tax unless it’s a wedding gift from your parents of £5000 or less or from a partner.
Gifts valued above £325,000 may become liable for inheritance tax, should the person giving the gift pass away within 7 years of gifting it. However, it’s unlikely that a mortgage deposit would be this substantial for a standard residential home.
Will the source of the gifted deposit be checked by mortgage lenders?
Yes, most lenders will do checks to ensure the source of the gift is legitimate. As well as written confirmation that the gift does not need to be repaid, they will want evidence of where the funds came from and that the person gifting it can afford it. Usually, bank statements will be adequate for this.
