What is a gifted deposit?
Gifted deposit.
Taking the first step in buying a property is often a scary but exciting moment. There can be lots of worries and questions.
One of the main worries is how to fund a purchase, particularly if it is the first time. Often saving the funds towards a purchase to demonstrate to the lender that you are a good prospect for a mortgage can be extremely difficult and can be the factor that prevents people from taking the first step to owning their own property or buying a second property.
Many parents help their children by providing some money towards a property purchase and sometimes close relatives want to step in to help a relative to buy their property to ensure the property becomes affordable for the buyer.
When money is gifted in this way towards a property purchase, it is known as a ‘gifted deposit’.
In most cases where gifted deposits arise, it is a simple case of a family attempting to help the next generation to buy their first property, or parents may help their son or daughter following a divorce, and in these situations it is very rare that there will be any legal issues.
Money can be gifted to the purchaser of a property either before the purchase, on exchange of contracts or even on completion but with any gift of money, there are a few legal points that need to be considered.
Certain checks must be made to ensure that the gift is being made correctly, and that the Giftee has sought independent legal advice in relation to gifted deposit being made before the property transaction completes.
One point in this process that sometimes causes anxiety to the person making the gift is that certain financial checks need to be made to ensure we, as a firm, are following anti-money regulations.
It is important to establish that a gifted deposit is, in fact, a gift, with no repayment expected. A mortgage lender will generally not accept another loan on a property, especially if it could be considered as a second mortgage or charge. A lender often requires a written notice confirming that no repayment will need to be made by the purchaser with regards to the gifted deposit and this is carried out as part of the completion of our initial ‘purchase information form’ which is signed by the Giftee.
No rights or controls over the property can be expected by a Giftee after the property is purchase. If a Giftee intends to make the gift repayable, then is not a ‘gifted deposit’, and a mortgage lender will be unwilling to enter this arrangement. Once the mortgage lender is aware of the situation they will withdraw their mortgage offer, which will probably make the purchase of the property unaffordable for the purchaser.
Independent Legal Advice
A Giftee may find it beneficial to take independent legal advice (ILA) before providing the gifted funds. ILA will have to be provided by an independent solicitor at another firm who is not involved in the conveyancing or purchase process.
Tax advice by a financial advisor may also be required.
Money laundering checks
One point in this process that sometimes causes anxiety to the person(s) making the gift is that certain financial checks need to be made to ensure we, as a firm, are following anti-money regulations.
The law in the United Kingdom regarding the prevention of money laundering is very clear. As conveyancers, we have to comply with the Proceeds of Crime Act 2002 (POCA) and the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (as amended). This legislation sets out the core criminal offenses, compliance standards, and reporting duties which are applicable to our firm.
Your conveyancer needs to confirm that the gift is not an attempt to clean proceeds of crime and we do this by:
- Checking the Giftee’s identification.
- Requesting the last six months of bank statements from the Giftee which we will check to see how the funds accrued (Source of Wealth) and the source of funds Source of Funds). We may need to go further back with financial checks if the bank statements are not clear.
- When the funds are transferred there will be a record in the Giftee’s bank records and a corresponding record in the recipients bank records. If funds are transferred from a savings account to a current account by the Giftee, we will have to examine both bank accounts to be able to establish the Source of Funds.
We may carry out these checks using the Thirdfort App.
Many Giftee’s find these checks intrusive, but they are conducted confidentially and the checks are only made to ensure we are complying with anti-money laundering legislation.
If the Giftee of the funds does not wish to comply with the required money laundering checks we may have to decline the instructions from our client unless the purchase can be made without the gift. The money laundering checks are legal requirements with which we must comply.
We hope that this short article has helped with understanding gifted deposits.
If you need further advice about the process of giving or receiving a gift or the checks we make please do not hesitate to contact us.
Our telephone numbers are 0191 4555361 or 0191 4555361 or email info@hannayslaw.co.uk and we will pass the email to the right person to help with your query.
