Family Law Solicitors Guide to Gifted Deposits And How to Protect Them

Our family law solicitors encounter several situations in which parents, grandparents, or extended family help a loved one with a deposit for a first or new family home.

In this article, our family law solicitors offer guidance on how to protect a gifted deposit.

For expert advice call our team of specialist divorce and estate planning lawyers or complete our online enquiry form.

What is a gifted deposit?

A gifted deposit is where a friend or family member provides all or part of the deposit for the home you are buying. It may be your first home, relocating or upsizing with the arrival of children or trying to get back to home ownership after a separation or divorce.  

An alternative to a gifted deposit is a family loan. A loan agreement can state whether interest is payable and either give a specific repayment date or state that the loan must be repaid when the property is sold.

Gifted deposit or family loan?

A home buyer needs to know if they are receiving a gift or loan because of the mortgage and tax implications.

If you are buying with a mortgage, the mortgage company may not agree to lend you the amount required unless the deposit monies are gifted rather than lent. Some mortgage providers are happy to lend if your family or a friend is providing the deposit so long as the family money is protected by a second charge that ranks behind the mortgage provided by the mortgage lender.

If extended family are giving you money as part of their estate planning and inheritance tax strategy the plan will not work unless the money is gifted rather than loaned. There may also be tax implications under current inheritance tax rules if the family member dies within seven years of giving you the money.

If money is given, rather than lent, the giver does not retain any control over the money once it has left their hands. The extended family cannot legally insist the money is returned if they later find that they need extra cash or if there is a family fallout.

These are considerations to be discussed with your family with the help of an estate planning solicitor.

Who is the recipient of the deposit gift?

If you are buying a house with a partner, fiancée, husband or wife you need to know if the gifted deposit is a joint gift or not.

Whether the gift is joint or not you need a relationship agreement if you are buying a property jointly with a partner. The type of agreement you need depends on your relationship status:

• Unmarried – a cohabitation agreement 
• Engaged to be married or to enter a civil partnership – a prenuptial agreement 
• Married – a postnuptial agreement 
• In a civil partnership – a civil partnership agreement 

The agreement is between you and your partner and should record whether the gift is a joint one or not and what happens to the family home and the equity if you split up. What’s fair will depend on your financial and personal situation. For example, your family may have provided the gifted deposit but as your partner earns more than you, they will be paying a greater share of the mortgage payments. For example, both your families are gifting you money for the deposit but in unequal amounts.

A family law solicitor can help you work out what should go in your relationship agreement so that it feels fair to both of you and gives you both peace of mind. In addition, it should give your family confidence that you are respecting their deposited gift and sensibly protecting their family money.

If your circumstances change the relationship agreement can be reviewed and changed. For example, you may decide to get married, to have children or to extend the property. Any significant life event could prompt a review. 

Gifted deposits and divorce 

If you are buying a property on your own after a divorce with a gifted deposit you need:

• A financial court order (preferably a clean break) order with your ex-spouse 
• A relationship agreement if you go on to form a new relationship and your new partner spends time at your property even if their name is not on the title deeds or mortgage  

Does a relationship agreement protect a gifted deposit?  

Legal & General has carried out some research on trends in family gifting. 57% of mortgaged buyers buying a first home in 2020 received financial help from their parents or family members. By 2024, around 335,000 property purchases proceeded with the help of family money. With the significant rise in property prices and gifted deposits, it isn’t surprising that parents, grandparents and extended family want to know if relationship agreements work and if their gifted deposit is protected or is shared with your partner or spouse if you split up after buying the house.  

The answer to whether a relationship agreement works depends on a few factors:

• The status of your relationship – if you are unmarried a cohabitation agreement is binding providing safeguards are met. If you are engaged to marry or married a prenuptial agreement or postnuptial agreement will carry weight in any future divorce provided the terms are fair and meet reasonable needs and safeguards when drawing up the agreement were met
• How the agreement was drawn up 
• What the agreement says 

Speaking to a family law solicitor will help you understand the safeguards a cohabitation agreement or prenuptial agreement offers to both you and the family member gifting the money to you. 

It is best to talk to a family law solicitor before you talk to your partner about a relationship agreement. That’s because your solicitor will discuss a range of options of what goes in the agreement and how best to protect the gifted deposit. It is therefore wise to understand those options rather than have one fixed idea of what your agreement should say from one discussion with your spouse or partner. 

Our friendly family lawyers aim to provide a relationship agreement solution so your parents, grandparents, extended family or friend feels confident in gifting you money to buy a property whilst protecting your interests and providing a fair and equitable agreement between you and your partner.

For expert advice call our team of specialist divorce and estate planning lawyers or complete our online enquiry form.