For many young people in the UK, saving for a first house deposit feels harder than ever. Rising property prices, higher rents and everyday living costs mean that even the most disciplined savers can struggle to get on the property ladder. As a result, more parents and grandparents are choosing to gift a deposit to help their children buy their first home.
If you’re thinking about doing the same, it’s important to understand the implications – both financial and legal – before handing over the money. Here’s what you should consider before gifting a deposit.
Why More Parents Are Gifting Deposits
Across the UK, the so-called “Bank of Mum and Dad” has become one of the largest contributors to first-time buyers. For many families, gifting part (or all) of a deposit can:
-
Make it easier for children to secure a mortgage
-
Reduce the amount they need to borrow
-
Unlock access to better mortgage rates
-
Help them buy sooner rather than later
However, while gifting can be generous and life-changing, it should always be done with careful planning.
Gift or Loan: Be Clear From the Start
One of the first things to decide is whether the money is a gift or a loan.
Most mortgage lenders will require a signed declaration confirming that the funds are a genuine gift and that you have no legal right to get the money back. If the money is actually intended as a loan, this must be declared, and it may affect your child’s mortgage affordability.
Being honest and transparent at the outset avoids problems later down the line.
Tax Implications You Need to Be Aware Of
Inheritance Tax (IHT)
In the UK, gifting money can still have inheritance tax implications. A deposit gift is usually considered a Potentially Exempt Transfer (PET). This means:
-
If you live for seven years after making the gift, it becomes fully exempt from inheritance tax
-
If you pass away within seven years, some or all of the value may be included in your estate for IHT purposes
You can also make use of smaller allowances, such as the £3,000 annual gifting exemption, but large deposits generally fall outside this.
Capital Gains Tax (CGT)
Good news: cash gifts do not attract capital gains tax. However, if you give assets (such as property or shares), different rules may apply.
Always consider seeking advice before making large gifts.
Protect Your Own Financial Security
Helping your children should never mean compromising your own future. Before you gift a deposit, ask yourself:
-
Will I still have enough for retirement?
-
Am I maintaining an emergency fund?
-
Could I need this money later for care or medical costs?
-
Would a smaller gift or alternative support be safer?
Once money is gifted, it usually can’t be reclaimed – even if your own circumstances change.
Should You Protect the Money?
Family relationships change, and unfortunately, not all relationships last forever. If your child later separates from their partner, a deposit gift could be treated as a shared asset.
Some parents choose to ask their child to sign a declaration or trust agreement that protects the gifted deposit if a relationship breaks down. This requires legal advice but can provide peace of mind.
Alternatives to Gifting a Deposit
If an outright gift doesn’t feel right, there are other ways to help:
-
Acting as a guarantor
-
Providing a family offset mortgage
-
Loaning the deposit formally with written agreements
-
Helping cover solicitor or stamp duty costs instead
Each option has different risks and responsibilities, so it’s worth exploring what suits your family’s situation.
Final Thoughts
Gifting a deposit can be one of the most meaningful ways to support your children financially – but it shouldn’t be rushed or done emotionally. The best decisions are made when generosity is balanced with careful planning.
Taking professional financial and legal advice can help you avoid unnecessary tax, protect your money and ensure the gift benefits your child exactly as you intend.
If you’d like to discuss your options, our team is here to help you explore the most effective and tax-efficient way to support your family’s future.
Get help: Speak to a UK mortgage broker
