Acquire Gift Letters

It is common for a relative to gift a lump sum to contribute to a house deposit, refurbishments or other costs of buying a home. When this occurs, your lender needs to verify that the deposit into your account is not an additional debt that may impact your ability to repay your mortgage.

Any gifts will require an accompanying signed letter from the sender that outlines the following:

  • The gift amount.
  • Their relationship with the receiver of the gift.
  • A statement that the gift is non-returnable and that the sender waives all interest in the property.

Tax Implications of Gifts

During a calendar year any individual can gift up to €3,000 to another. This means that each parent could theoretically gift €3,000 to their child and their child’s partner for a total of €12,000 without triggering any tax obligations.

After the yearly allowance, you may be required to pay Capital Acquisitions Tax (CAT) if the gift exceeds a certain threshold. CAT is charged to the receiver of the gift and is calculated as a total of all gift amounts from the 5th of December, 1991.

In the most common scenario, whereby a parent gifts a child a lump sum, there is a lifetime tax free threshold of €335,000.

For other direct relatives such as a sibling or niece, the allowance is €32,500. For anyone else, the allowance is €16,250.

Interest-Free Loans from Relatives

To avoid eating into the lifetime gift allowance parents will sometimes lend their child money without a set repayment date or an expectation of interest to be paid. If the loan is not repaid before the parents pass away the remaining unpaid loan amount is written off and considered as part of the child's total inheritance amount.

Both Revenue and your lender will require the terms of the loan in a contract and signed by all parties involved. Your lender may also ask you to create a “Deed of Confirmation” with your parents. This legal document will state that the bank has precedence to the property in case legal or financial issues arise in future.

Using a Temporary Gift Letter for Approval in Principle

Unfortunately a lender won't grant you mortgage Approval in Principle without a full deposit saved including enough for Stamp Duty and other costs. However if you will have the full amount saved in a matter of months you can speed things up by using a gift letter from a family member that states they will cover the difference even if you don't actually intend to use the gifted amount. Generally the family member won't even be required to transfer you the money, the gift letter will be sufficient to assure the lender that the funds are available.

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