For many first-time buyers and home movers, financial assistance from family members can make all the difference when purchasing a property. Whether it is a contribution towards a deposit or a larger gift to help fund a purchase, gifted funds are increasingly common in property transactions.
One of the most frequent questions we receive is:
“Why does my solicitor need to carry out checks on my parents (or other family member) if they are simply giving me money?”
While this can come as a surprise, solicitors are required to carry out certain checks on anyone providing funds towards a property purchase. These checks help protect all parties involved and ensure compliance with anti-money laundering regulations.
What Is a Gifted Deposit?
A gifted deposit is money provided by a third party, usually a family member, which is intended to contribute towards the purchase of a property.
The key feature of a gift is that the money does not need to be repaid and the person providing the funds will not usually acquire an ownership interest in the property.
Lenders and solicitors will often require confirmation of these arrangements before a transaction can proceed.
Why Does My Solicitor Need to Check the Person Providing the Gift?
Solicitors are required to understand where the money being used in a property transaction has come from.
If part of the purchase price is being funded by a third party, it is not enough to verify only the buyer’s identity and finances. We must also consider the source of the gifted funds and carry out appropriate checks on the individual providing them.
These requirements are designed to prevent money laundering, fraud and other financial crimes.
In simple terms, if funds are entering the transaction from another person, solicitors must understand who that person is and where the money has come from.
What Checks Will Be Required?
The exact requirements may vary depending on the circumstances, but commonly include:
Identity Verification
The person providing the gift will usually be asked to provide proof of identity, such as:
- A valid passport.
- A photocard driving licence.
- Proof of address documentation.
Many firms now use electronic or biometric verification systems to complete these checks securely and efficiently.
Anti-Money Laundering Checks
Solicitors are required to carry out electronic AML screening on the individual providing the gift.
These checks help verify identity and identify any issues that may require further investigation.
The donor may also be asked to provide evidence showing how the gifted funds were accumulated.
This could include:
- Bank statements.
- Savings account statements.
- Evidence of an inheritance.
- Investment statements.
- Documentation relating to the sale of assets or property.
The evidence required will depend on the amount being gifted and the circumstances surrounding the funds.
Why Are Bank Statements Needed?
This is often the question that causes the greatest surprise.
Clients sometimes feel uncomfortable when a parent or relative is asked to provide financial documents, particularly if the gift is relatively modest.
However, solicitors must be able to demonstrate that they have taken reasonable steps to understand the origin of the funds entering the transaction.
Simply knowing that money came from a family member is not sufficient. We must also understand how that family member obtained the funds being gifted.
Does This Mean We Don’t Trust Family Members?
Absolutely not.
These checks are not intended to suggest that a family member has done anything wrong. They are regulatory requirements that apply to all clients and transactions, regardless of personal circumstances.
The same approach must be applied consistently whether the gift is coming from a parent, grandparent, sibling or friend.
Will These Checks Delay My Purchase?
Gifted deposit enquiries can sometimes cause delays if information is requested late in the transaction.
For this reason, it is helpful to let your solicitor know as early as possible if any gifted funds will be used towards the purchase.
The earlier checks can be completed, the less likely they are to affect timescales later in the process.
Helping Your Transaction Run Smoothly
If you intend to use gifted funds towards your property purchase, you can help avoid delays by:
- Informing your solicitor at the outset.
- Letting the donor know that identity and AML checks will be required.
- Providing requested documents promptly.
- Ensuring the donor understands that source of funds evidence may also be needed.
While these requirements can sometimes come as a surprise, they are an important part of safeguarding property transactions and ensuring compliance with legal and regulatory obligations.
If you are receiving financial assistance from family members and have questions about the process, our conveyancing team will be happy to explain what information may be required and why.
