Think before you gift: Scullion LAW warns of hidden Inheritance Tax on house deposits
Scottish families are being urged to seek legal advice before gifting large sums towards house deposits, as doing so could trigger unexpected Inheritance Tax (IHT) bills if the giver dies within seven years.
Leading Scottish law firm Scullion LAW warns that while gifting a deposit can help younger generations onto the property ladder, it may lead to substantial Inheritance Tax liabilities if families fail to plan ahead.
A gifted deposit - money given by a parent or close relative to help with a house purchase - is typically treated as a ‘Potentially Exempt Transfer’ (PET) for Inheritance Tax purposes. If the giver survives for seven years after making the gift, it usually falls outside their estate and is exempt from Inheritance Tax. However, if they pass away within that period, the gift may still be taxed - potentially at a reduced rate, depending on its size and timing.
Scullion LAW urges families to seek legal advice to ensure these generous gestures don’t lead to unexpected tax liabilities or impact the estate left behind.
“Gifted deposits can be a useful way to support younger generations into home ownership,” says Ailidh Ballantyne, Head of Wills, Powers of Attorney and Estates at Scullion LAW. “But without proper legal advice, families risk facing unexpected tax consequences.”
Gemma Miller, Director and Head of Property Law at Scullion LAW echoes this: “Many families simply don’t realise the potential tax consequences. If a parent gifts £50,000 towards a deposit and then passes away within seven years, their estate may end up facing a significant Inheritance Tax charge.”
As property prices and the cost of living continue to rise, it is more common parents and grandparents are stepping in to support first-time buyers.
Reflecting this trend, recent data from Twenty7tec shows a sharp rise in gifted deposits, with families increasingly stepping in to help younger generations buy property .1 In 2023, parents and grandparents gifted a record-breaking £9.4 billion towards house deposits, nearly double the £5 billion recorded in 2019, with the average gift now standing at around £58,000.
“We speak with more and more families who want to help their children buy a home,” Gemma Miller said. “But many don’t consider how this will affect their estate, or what might happen if the gift isn’t properly recorded. Without legal advice, they risk unintended tax bills and family disputes.”
Undocumented gifts can also lead to confusion and conflict. In some cases, families disagree over whether the money was a gift or a loan. These disputes often surface during separations or after a property is sold.
“To avoid misunderstandings, we always advise families to document the gift clearly and seek legal guidance,” Gemma Miller added. “Doing this isn’t about mistrust; it ensures everyone understands the arrangement and protects their interests, especially when the amounts involved are substantial. Families should also review their estate planning to manage any potential inheritance tax exposure.”