When buying a house, you might turn to ‘The Bank of Mum and Dad’ to help you fund the deposit required. In most cases, any balance that is being used towards the deposit that is not coming from the purchaser’s own funds must be confirmed to be a gift. This means that the person giving the money confirms that they will have no legal interest in the property nor any claim for the money at a later date.
Why might a person want to protect a gifted deposit they are making?
While ‘The Bank of Mum and Dad’ may be happy to give you the money with no conditions, no formal legal document setting out terms of repayment, or any ownership interest in the property, they may be a little nervous if you are buying the property with a partner.
They may want to have some form of protection in place to ensure that the money that they have gifted you, is paid to you when the property is sold, rather than it being split and shared between all the property owners.
Protecting a gifted deposit – Declarations of Trust
One way to protect an unequal contribution to the purchase price is to enter a Declaration of Trust. A Declaration of Trust sets out in writing and in detail the contributions of each of the parties, and can also set out what is to happen to the money when the property is sold.
This can be supported by entering a restriction on the Land Registry Title Documents, which identifies the existence of the Declaration of Trust and prevents the property from being sold unless a certificate is supplied by the parties involved, or by a conveyancer, that the sale is in accordance with the terms of the Declaration of Trust.
By doing these two things, it would provide a level of protection and reassurance to ‘The Bank of Mum and Dad’ and clarity to the property owners about the unequal contributions made to the deposit, and how they are to be distributed in the future and could prevent the risk of dispute arising should a relationship breakdown.
This is only one example of how to protect unequal contributions towards the deposit. There are other ways of protecting unequal contributions, which we are able to discuss and advise on.
How Nelsons can help
If you have any queries in relation to protecting a gifted deposit or any related subjects, please contact Rachel or another member of the team in Derby, Leicester, or Nottingham to discuss your circumstances.Contact us