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Buying a house is usually the biggest financial purchase of your life.

As such, it is common for family members to want to help their loved ones and offer some financial assistance. At Delaney Graham, this is something we deal with on a daily basis.

There are steps to work through during the conveyancing transaction to make sure that your solicitor has the correct documentation to comply with current Anti Money Laundering (AML) regulations. When there is a mortgage, there are also specific criteria that must be met to comply with the mortgage lenders terms and conditions.

This blog will explain in practical terms what the process is for dealing with gifted deposits and why it is required.

What is a Gifted Deposit?

When the money (being contributed to the purchase price by the buyer) is not coming from their personal funds and is being provided by a third party as a ‘gift’ this is what is known as a gifted deposit.

To be classed as a bona fide gift, certain criteria must be met. A gift is not a loan and must not come with conditions attached or be repayable. This means that the money should not be given on the understanding it will be paid back in installments or when the property is sold. A mortgage lender will require a declaration to be signed by the donor of the gift to confirm the nature of the gift and that it is not repayable.

Who can provide a Gift Deposit?

Gifts towards house purchases do not only have to come from ‘the bank of mum and dad’.  That said, large financial contributions would be expected to be provided by family members, or someone with a close personal relationship to the purchaser.

In most cases, mortgage lenders will not allow gifts from just anyone and will only agree to offer the loan finance on the basis the gift is from a relative. The relationship between the purchaser and the donor must be established. Every lender will have their own specific requirements that can change from time to time. Some lenders, for example, will not accept gifted deposits from family members outside the UK.

If you have already received money from a family member, it is possible that this will be classed as a gift.

Gifted deposits often have to be reported to the mortgage lender by your solicitor in the course of the conveyancing transaction. The offer of the loan finance should be issued on this basis. Unless it is noted on the mortgage offer, the mortgage lender will usually have to confirm in writing to the solicitor that they are aware of the gift and are therefore happy to proceed on this basis. This is needed before the contract to purchase the property can be finalised. Some lenders have online portals to make this process more efficient.

The gift must be transferred from the donor’s personal bank account to the purchaser’s bank account. Thereafter it will be remitted by the purchaser to their solicitor in time for completion. A paper trail of the transfers will have to be provided to show the movement of the balance of funds.

What documents are required for a gifted deposit?

(A) ‘Gift Deposit Declaration’.

This will be drafted by the solicitor, or occasionally by the lender concerned, and sent to the donor to sign together with a letter explaining that they should seek independent legal advice before signing the document. This is because the declaration will have legal consequences. There would be a conflict of interests if the solicitor acting in the purchase was to give the donor advice on the effect of the gift deposit declaration.

The declaration must be signed and returned to the conveyancing solicitor before completion.

The declaration is a written statement generally confirming the following points:-

  1. the nature and amount of the gift.
  2. the relationship between the parties.
  3. the source of wealth.
  4. the donor will not occupy the property.
  5. the money is not to be repaid.
  6. the donor will not hold a charge/ security over the property or bear any interest in it.

Depending on the circumstances of the conveyancing transaction, some mortgage lenders have preferred style declarations and will want to see the signed declaration in their format before releasing the loan funds.

It might also be a requirement of the mortgage lender that there is a personal search against the donor in the Register of Insolvencies at the Accountant of Bankruptcy and Register of Inhibitions & Adjudication. This is to ensure there is no legal restriction on them handling their personal finances.

(B) Source of Funds & Source of Wealth Evidence

To comply with AML regulations, checks will have to be completed on all funds that will flow through the solicitors’ client account. This is to ensure the money is coming from a legitimate source and the transaction is not part of a larger criminal enterprise.

The donor will have to provide photographic and proof of address ID. The solicitor will complete an electronic search to verify their identity.

3-6 months of bank statements, with the donor’s name and address, will have to be provided to show the source of funds.

The solicitor must also establish the origination of the funds (source of wealth). Specific requirements for source of wealth evidence should be discussed with the solicitor and what is needed will depend on the circumstances of the source of wealth.

It is appreciated that this might appear to delve deep into the personal affairs of the donor.  However, all the above can be sent directly to the solicitor by the donor and will be treated with confidence.

If you have any questions relating to the above, please contact our office on 0141 483 4450.

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