As a result of soaring property prices, many first-time buyers are gifted money to support their home purchase. Our specialist property solicitors can guide you through the process of giving or receiving a financial gift that is to be used towards a property and the considerations, such as inheritance tax.
There is a process that must be followed when gifting a sum of money.
- Declaration. A gifted deposit letter must be completed by the parties gifting the money. The gift must also be reported to the mortgage lender.
- Proof of ID. This must be a photo ID and a proof of address.
- Source of funds. There must be proof of where the gift has come from.
It is important to consider the Inheritance Tax implications and the risk that a property sale can be voided if the party who has gifted the money is made bankrupt in the next five years.
What Is a Gifted Deposit Declaration?
When you decide to gift a sum of money, we require a letter from you confirming that you are providing the money as a gift and that you will have no rights over the property. This is very important as it shows that the money no longer belongs to the party who is gifting it, and there can be no future claim to a beneficial interest or right to the property.
Inheritance Tax Rules
If the party that is gifting the money dies within seven years and the estate is large enough to attract inheritance tax, then the gift is taxed on a sliding scale known as taper relief. We can provide further guidance on this if it is applicable to your situation.
Bankruptcy Rules
If the gifter become bankrupt within five years of giving the funds, then the house purchase could be revoked, and the money used to pay the debts of the gifting party.
How Do You Prove the Source of Funds?
This is another important step as the solicitor will need to carry out anti-money laundering checks to prove that they know where the money has come from. In most circumstances, it will be from a sale of an expensive asset, such as a car or house, a pension draw down, or the sale of shares. These are all easy sources to prove with copies of relevant documents.
It is harder to prove the source of funds when the money has come from earnings over a long period of time or has been collected from multiple sources. In this situation, the source of the money will need to be explained in detail to meet with anti-money laundering procedures.
Our highly regarded and friendly property solicitors will be on hand to answer any questions regarding financial gifts and to ensure a smooth process from gifting of funds, to getting the keys to your new property. They pride themselves on ensuring the best interests of all parties involved are protected.
