Gifted Money And Property Transactions: A UK Tax Guide

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Receiving gifted money from family assists many UK property buyers in building deposits and completing purchases. However, gifting rules and tax obligations require diligent navigation to avoid penalties. This guide covers common gifted money scenarios – from deposits and wedding gifts to inheritance and residential transfers – explaining how to structure gifts compliantly. We also outline taxes potentially triggered and available exemptions. Follow this advice to legitimately utilise gifted funds while minimising associated taxes.

Gifted Deposits for First-Time Buyers

Parents often gift deposits, requiring documentation:

  • A gift letter signed by a donor evidencing an irrevocable gift, not a loan.
  • Bank statement showing funds coming from relative’s account.
  • Proof of donor’s source of funds if substantial amounts.
  • Utility bill confirming donor’s different address to the recipient.
  • Identification confirming the donor’s relationship like a birth certificate.

Documenting evidence clearly distinguishes gifts from hidden loans.

Lifetime Gifting Allowances

Gift givers have annual tax-free gifting allowances:

  • £3,000 annual exemption – unused portion rolls over one tax year.
  • Additional £250 small gift exemption.
  • Wedding/civil partnership gifts up to £5,000 from each parent, £2,500 from each grandparent, £1,000 from anyone else.
  • Gifts out of income are not subject to Inheritance Tax if evidence of affordability.
  • Unlimited gifts to spouses or civil partners.

Allowances enable tax-free gifting if structured correctly.

Inheritance Tax on Cash Gifts

If lifetime cash gifting exceeds allowances:

  • The gift value above allowances incurs Inheritance Tax if the giver dies within 7 years.
  • Tax charged at 40% above nil rate band.
  • Taper relief reduces tax for gifts given 3 to 7 years before death.
  • Gifts only become taxable above the available nil rate band.

Utilise allowances to avoid Inheritance Tax on gifts.

Accepting Deposit Gifts as a Couple

For recipient couples, multiline gifting effectively doubles allowances:

  • Each parent can gift £3,000 annually to each individual.
  • Wedding gift allowances double if both partners receive separate gifts.
  • Others’ small gift exemptions also double if given separately.
  • Carefully document funds gifted individually to each recipient.

Two separate gift allowances maximise tax-free gifting.

Saving Cash Gifts in ISAs

Gift money tax can be shielded in ISAs:

  • Saver ISAs let you shelter £20,000 annually.
  • Lifetime ISAs accept £4,000 but the state provides a 25% top-up.
  • ISA investment growth accumulates tax-free.
  • Transferring to LISAs starts tax benefits earlier.
  • Junior ISAs offer tax haven gifts for children’s futures.

ISAs grow deposits tax-free while accessible for property transactions.

Gifting for Home Renovations and Repairs

Gifts funding renovations also require planning:

  • Gift letter stating cash is for specified property repairs, not recipient’s benefit.
  • If over annual allowance, document gift came from giver’s income.
  • For large repairs like kitchens or extensions, best to spread gifts over two tax years.
  • Pay builders directly from gifted funds.

Structuring gifts carefully avoids tax implications.

Putting Cash Gifts Into Trust

More substantial gifting may use trust structures to reduce tax:

  • Place cash into a discretionary trust with trustees controlling distribution.
  • Trust income and gains are taxable but allocated to beneficiaries within allowances.
  • Trusts allow gradual gifting out of capital over time while reducing Inheritance Tax.

Specialist trust and estate advice is advisable for larger-scale gifting.

Buying Joint Homes With Gifted Deposits

Two common techniques enable joint home acquisition using gifted deposits:

  • “Tenants in common” gives ownership split as per initial deposit contributions. Requires declaration stating proportions.
  • “Joint tenants” have both parties equally owning the whole property. More common for couples.

Seeking legal advice ensures gifted deposit monies are fairly structured.

Transferring Partial Property Ownership

Gifting part ownership in existing properties also requires structuring:

  • Transfer portion of property title via a deed of gift.
  • Must state percentage share gifted if not whole property.
  • Beware of losing the main residence tax exemption if the share is too low.
  • Specialist tax advice is needed if still jointly occupying after transfer.
  • Review mortgage terms allowing part-gifted ownership.

Precision ensures part-gifted properties don’t trigger unnecessary tax.

Inheriting Property and Other Assets

Inheriting property through wills has fewer gifting restrictions but taxes apply:

  • No inheritance tax if the estate is below the £325k threshold.
  • Only value above threshold taxed, currently at 40%.
  • All gifts made within 7 years before death may be liable for inheritance tax if the threshold is exceeded.
  • The inheritor becomes responsible for capital gains tax on sale based on the value at the time of bequeathment.
  • Seek tax advice to maximise available allowances like spouse exemption.

Will enable significant gifting but still require tax considerations.

Reporting Gifts to Avoid Future Tax Investigations

To evidence gifting if queried in future:

  • Keep gift letters and evidence of money transferring.
  • Lodge details on tax returns for giver and recipient.
  • Report within 30 days if tax chargeable above allowances.
  • Keep records for 6 years after gift transaction.
  • Seek accountancy assistance if substantial gifting is made.

Declaring gifts helps substantiate details if authorities later investigate.

Handling Repayment Requests for Gifted Deposits

If asked to repay gifts:

  • Request evidence the funding was intended as a revocable loan, not an exempt gift.
  • Consult a property lawyer – contracts stating irreversible gift provide protection.
  • If no contract, the recipient is still not legally bound to repay unless fraudulently claimed gift status.
  • Make reasonable repayment offers accounting for years since the gift if ethically appropriate.
  • Communication-wise -don’t sever family ties over money if possible.

Firm evidence strengthens the recipient’s case if repayment disputes arise.


While enabling property purchases, gifted money requires diligent handling to document exempt gifts, maximise allowances, structure deposits compliantly and evidence transactions. Taking professional tax advice and retaining detailed records helps substantiate gifts if scrutinised later. With prudence and open communication, gifting can benefit recipients while minimising donor and recipient tax obligations. The outcome is family contributions facilitate major property transactions smoothly and legitimately.

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