What is a gift?

In a property transaction, a gift is a sum of money that is provided to the purchaser by a third party, who will not be named on the title register as an owner. A gift does differ from a loan as one of the conditions of a gifted sum is that it must not be repayable.

The Law Society’s Standard Conditions of Sale (fifth edition) set out the framework for residential property transaction and they are incorporated into the majority of contracts when residential property is being dealt with. Under these conditions, it is a requirement that 10% of the purchase price is paid to the seller upon exchange as contracts. This is referred to as your consideration for the property. When it comes to matters using government aided schemes, or obtaining 95% mortgages, it is usual that parties will agree to a 5% deposit on exchange.

You are of course able to contribute more capital than 10%, however, this is the most that would be paid upon exchange. Any additional funds you are investing would be requested for completion. It is worth remembering that when you purchase a new build property, your warranty provider will only protect a deposit of up to 10% of the purchase price! By contributing a higher sum yourself, you are able to obtain a lower loan to value mortgage. Some people do not necessarily use a gift for the deposit alone as some people instead use this to obtain further equity in their property. Some people will use the gifted monies for both.

If you have already received or will be receiving funds that you intend to invest towards the purchase of your property, whether this is from a friend, relative, or non-married partner, for the purposes of your transaction, this will likely be classed as a gifted deposit.

Can anyone provide a purchaser with a gift?

Any third party providing a sum of money towards the purchase of a property, that is not repayable, could be classed as a gift donor. It is however important to note that lenders will have their own specific requirements as to who they will allow gifts from. The majority of lenders prefer direct or step relatives, such as parents, grandparents or siblings. Married or domestic partners as well as engaged parties, with the intention to marry are sometimes accepted by a lender, depending on their requirements.

Lenders follow something called the UK Finance Mortgage Lenders Handbook (UKFML) of which list each lender’s own specific requirements. A conveyancer will likely be acting for both the purchaser and the appointed lender in the property purchase. This means that the acting conveyancer has certain obligations they must adhere to, to ensure that not only are the interests of the purchaser protected, but the lenders too.

In circumstances where you are receiving a gift from someone who is not one of the parties listed above, the conveyancer is likely going to be required to report the details of the gift to the mortgage lender for their written consent to the gift, before proceeding. Where there is not a mortgage lender, there are no specific rules on who can and cannot provide a gift.

Does the donor need to provide any documents?

Yes! Anyone providing a gift towards a purchase will need to provide evidence of their identity and source of funding. This is required in order to comply with Anti Money Laundering laws and legislation, in addition to lender requirements (when applicable). In addition to this, the donor must additionally provide a signed declaration of which confirms the sum they are gifting, that it is non repayable, that they are solvent and will not hold any interest, or place a charge over the property title. Some lenders will additionally require confirmation from the donor to confirm that they will not live in the property and they are solvent. This will need to be backed up by a Bankruptcy check of which a conveyancer will carry out against each gift donor.

Important information
Due to tax rules and the impact gifting funds can have on estate planning, it is important that any party providing a gifted deposit seeks independent legal advice to ascertain their position before proceeding to provide the gift. They would be unable to use the same firm that you are using to purchase the property to obtain the advice, on the basis this would be classed as a conflict of interest. The firm would need to be completely independent.

A conveyancer is only required to check that you hold the funds that will be passed through their client account. For other payments relating to the property, of which will not be dealt with via the firm (furniture, flooring, decorating etc…) then evidence of any monies from a third party would not be deemed a gift. If you are in any doubt as to whether or not the funds you are investing will be classed as a gift, please speak with your conveyancer at the earliest opportunity.

If you would like a quote or advice about a residential property matter please visit Get a Conveyancing Quote or contact our team on [email protected]