Hello, I hope someone can help with this. My husband and I have more or less decided to sell our buy to let property in Kent (some of you may have seen my earlier threads on this) and one of the reasons for doing so is that we would like to help our son get onto the property ladder. He is 28, renting in London, and has been saving steadily but is still some way short of a deposit for anything he could realistically buy in the areas he is looking at.
We are thinking of gifting him somewhere in the region of £40,000 to £50,000, which would come from the proceeds of the BTL sale after capital gains tax is dealt with. My questions are as follows.
First, I understand there is no immediate income tax or capital gains tax liability on a cash gift between parent and child, but that the gift would fall within the inheritance tax regime if either of us were to pass away within seven years. Is that correct, and is there anything we need to formally document or report to HMRC at the time of the gift, or does it only become relevant if the worst happens?
Second, I have read that mortgage lenders require a “gifted deposit letter” confirming that the money is a gift and not a loan. Is there a standard format for this, or does the lender provide a template? And does the lender typically want to see where the money came from, i.e. would they want evidence of the BTL sale?
Third, does it matter whether we gift the money before or after the BTL sale completes? We were thinking of transferring it once we have the proceeds in hand, but my son may want to start making offers before then.
Many thanks in advance for any guidance. I know this is probably straightforward for some of you but it is all new territory for us.
On the tax side, a gift of cash for a deposit is a potentially exempt transfer for IHT purposes. If both you and your husband survive seven years from the date of the gift, it falls out of your estates entirely. There is no income tax or CGT liability on the recipient. The lender will require a signed gifted deposit declaration confirming the money is a gift and not a loan, and that the donor has no interest in the property. Most high street lenders have a standard form for this. Professional advice is worth taking if the amount is large enough to interact with either of your nil rate bands.
Thank you very much, CGT_Watcher, that is extremely helpful and reassuring. I had read about the seven year rule but was not entirely sure whether it applied to this type of gift.
I do have a follow up question if you do not mind. The money for the gift would be coming from our joint savings account, and from the eventual sale proceeds of the buy to let (which is jointly owned). If we make a single gift to our son for his deposit, does that count as one potentially exempt transfer or would it be treated as two separate gifts, one from each of us? I am thinking this matters because if it is treated as two gifts then each of us would be using our own annual exemption and nil rate band rather than just one of us.
I appreciate this might be getting into territory where we need to speak to an accountant, but it would help to understand the general position before we do. Many thanks.
Hello, I hope it is all right to come back to this with one more question. I spoke to our daughter’s mortgage broker on the phone last week (with her permission of course!) and he mentioned that the lender will need a gifted deposit letter confirming we have no interest in the property. He seemed to think that both my husband and I would need to sign separate letters as we are both giving the gift jointly, but he was not completely sure.
Does anyone know whether lenders typically require one letter signed by both parties, or two individual letters? I want to get this right so it does not hold things up further down the line. Our daughter is still at the looking stage so there is no rush, but I would rather have everything prepared in advance.
Thank you.
Hello, I wanted to come back to this thread with a small update, as our daughter has now had a more detailed conversation with her mortgage broker about the gifted deposit and I thought it might be useful for anyone in a similar position.
The broker has confirmed that the lender (Nationwide, in her case) will require a signed gifted deposit letter from both myself and my husband, confirming that the money is a gift and not a loan, and that we will have no interest in the property. He also said they will want to see three months of bank statements from us showing the source of the funds. I had assumed they would just want to see the money sitting in an account, but apparently they need to trace where it came from, which makes sense given anti-money laundering rules.
The amount we are gifting is from the proceeds of a maturing fixed rate savings bond, so the trail should be straightforward. However, the bond does not mature until mid-January 2026, and our daughter is hoping to have her mortgage offer in place before Christmas so that she can move quickly if the right property comes up in the new year.
My question is whether there is any issue with getting the mortgage offer agreed in principle now, before the gift funds are actually available, and then providing the bank statements showing the source once the bond matures in January. Or does the lender need to see the funds in our account before they will issue a formal offer? I would be very grateful if anyone who has been through this recently could share how it worked in practice.
Thank you as always for the helpful advice on this thread.
Hello, just a quick update on this. The mortgage broker has now confirmed that the wording of the gifted deposit letter is acceptable to the lender, which is a relief. He said the key phrases they needed were that the money is a gift with no expectation of repayment and that the donors will not be acquiring any interest in the property.
One small question that has come up. Because the money is coming from a joint savings account held by my husband and me, do we both need to sign the letter, or is it sufficient for just one of us to sign on behalf of both? The broker seemed unsure and said to check with the solicitor, who has not yet come back to us. If anyone has been through this recently I would be grateful to know what their lender required. Many thanks.