Do banks not accept gifts from family friends?

cb123

I've run into a bit of a snafu.

I am thankfully in a position to apply for a mortgage, and I'm getting the last bits together.

I was talking to my broker today and she was not impressed that a large chunk of my deposit was gifted by a family friend/non-relation stating the banks only like it when it comes from a direct relative.

She mentioned on the phone (briefly) that they don't look at the source of where the money came from, just the letter. I'm not sure if she was hinting and telling me to lie? I don't want to ask again as I don't want anyone to get in trouble. She ended the call telling me to get the letter signed by the giftee.

Just to clarify, the money has been in my account for 12 months, it is a gift and is all mine.

I'm not sure what to do, are that banks that adamant on the money coming from family? Should I bluff and say it came from a parent or play the 'She's my godmother' card, or is that risky. Any advice would be great. I don't want to lie but I certainly don't want to jeopardise my chances of a mortgage because the money didn't come from the 'right' place. HELP!

I suppose there may be tax implications with a gift that's not from a parent?

Allinall

I would have no hesitation in saying that it came from a family member.

Banks have no problem not being up front with their customers.

ZX7R

Liable for gift tax if the amount lodged is over €3000

cb123

bubblypop wrote: »

I suppose there may be tax implications with a gift that's not from a parent?

Agreed, and this was one of the first things I looked into. As far as I know, the threshold for gifts from non-relatives is €16,250 which I have not exceeded and it seems you don't need to file a tax return until you've reached 80% of that, which I am not at yet.

Allinall wrote: »

I would have no hesitation in saying that it came from a family member.

Banks have no problem not being up front with their customers.

True, I guess. I'm just nervous as she lodged the money into my account using her name 12 months ago. The banks have only asked for 6-month statements, but this seems like it could get dicey.

cb123

ZX7R wrote: »

Liable for gift tax if the amount lodged is over €3000

Would you mind linking this information - as far as I am aware you can be gifted up to €16250 without tax implications and only need to file once you hit 80%.

Group C: https://www.revenue.ie/en/gains-gifts-and-inheritance/cat-thresholds-rates-and-aggregation-rules/cat-groups-and-group-thresholds.aspx

https://www.revenue.ie/en/gains-gifts-and-inheritance/completing-your-gift-or-inheritance-tax-return-it38/how-do-you-know-if-you-should-file.aspx

ZX7R

cb123 wrote: »

Would you mind linking this information - as far as I am aware you can be gifted up to €16250 without tax implications and only need to file once you hit 80%.

Group C: https://www.revenue.ie/en/gains-gifts-and-inheritance/cat-thresholds-rates-and-aggregation-rules/cat-groups-and-group-thresholds.aspx

https://www.revenue.ie/en/gains-gifts-and-inheritance/completing-your-gift-or-inheritance-tax-return-it38/how-do-you-know-if-you-should-file.aspx

I just goggled avoid paying gift tax in Ireland
Greenway financial advisers. Ie

Feisar

Allinall wrote: »

I would have no hesitation in saying that it came from a family member.

Banks have no problem not being up front with their customers.

Would it come back to haunt in say ten years time. OP pops their clogs (hopefully not!). And a partner is left with the debt?

Feisar

Feisar wrote: »

Would it come back to haunt in say ten years time. OP pops their clogs (hopefully not!). And a partner is left with the debt?

You have to get life/Mortgage insurance. No debt.

I don't know that much about this particular case but it is was 12 months ago I would just keep totally quiet and say nothing, which is not a lie.

ZX7R

cb123 wrote: »

Would you mind linking this information - as far as I am aware you can be gifted up to €16250 without tax implications and only need to file once you hit 80%.

Group C: https://www.revenue.ie/en/gains-gifts-and-inheritance/cat-thresholds-rates-and-aggregation-rules/cat-groups-and-group-thresholds.aspx

https://www.revenue.ie/en/gains-gifts-and-inheritance/completing-your-gift-or-inheritance-tax-return-it38/how-do-you-know-if-you-should-file.aspx

Plus the links you attached from revenue is based on if your related to the person gifting you the money.
You are not related it falls under dirt tax I believe

Allinall

Feisar wrote: »

Would it come back to haunt in say ten years time. OP pops their clogs (hopefully not!). And a partner is left with the debt?

Absolutely not.

The friend gave a gift. They didn't borrow any money.

Any tax implications are totally separate from the mortgage application, and frankly none of the banks business.

cruizer101

The 16,250 is a lifetime gift amount exemption for group c.
The 3,000 is a yearly limit under which no tax has to be paid and doesn't go towards the lifetime limit, it is between anyone, so in theory if someone gave you 3,000 a year for 20 years you could get 60k tax free from them, and still wouldn't hit the 16,250 limit.

You are correct with the 16,250.

If it is under the limit it is not a massive gift anyway, I would just be honest and get a letter from them to send to the bank.
Unless the bank asks for it I don't see that the letter has to say whether or not they are a relation.

Edit to add

ZX7R wrote: »

Plus the links you attached from revenue is based on if your related to the person gifting you the money.
You are not related it falls under dirt tax I believe

Group C says: The Group C threshold applies where you, the beneficiary, on the date of the gift or inheritance have a relationship to the disponer not already covered in Groups A or B. I.e anyone not in group A or B

blastman

AS far as I can see, the OP is right, you would be CAT Group C as you aren't related to the gifter as you've said and you can receive €16250 before you need to pay CAT on the gift.

macsauce

blastman wrote: »

AS far as I can see, the OP is right, you would be CAT Group C as you aren't related to the gifter as you've said and you can receive €16250 before you need to pay CAT on the gift.

I think you can INHERIT up to €16250 from a person before paying tax but as someone has already said you can only receive a gift up to €3,000 before paying tax. That limit is per gifter and per recipient. So if you have a partner and the giftter has a partner that could be €12,000 you can receive before paying tax.

https://www.revenue.ie/en/gains-gifts-and-inheritance/cat-exemptions/small-gift-exemption/index.aspx#:~:text=You%20may%20receive%20a%20gift,disponer%20is%20exempt%20from%20CAT.

ZX7R

Allinall wrote: »

Absolutely not.

The friend gave a gift. They didn't borrow any money.

Any tax implications are totally separate from the mortgage application, and frankly none of the banks business.

No the tax implications are not separate, a bank won't lend on a deposit if the money's are not clear of owed taxes.
Even with a letter stating the cash was a gift they may request from the poster proof that all taxes on the money are paid

cb123

Thanks everyone for the replies.

I'm pretty confident regarding the tax implications. Cheers

cruizer101 wrote: »

Unless the bank asks for it I don't see that the letter has to say whether or not they are a relation.

Unfortunately they do ask for the relationship on the gift letter.

PO!NT wrote: »

The bank will have 0 issue.

They will send you a form that the person who gave you the money needs to fill out to say it’s a gift that doesn’t need to be repaid and that they have no share in the house.

I think this route might be best (and easiest). I should have said nothing in the first place.

There are two issues here:

1. The person giving you the money is entitled to a claim on your property. By providing a % of the purchase price they are entitled in law to a % of the equity in your property. The Bank normally gets round this by having the person giving the money sign a declaration of waiver of interest. But they generally don't like this with non-family because there is no automatic presumption that the money is a gift. However, they'll still do it.

2. Do not lie. You have to set out to the Bank by way of sworn declaration that everything you have said to them is true. Though it's unlikely to affect you down the line why on earth take the chance? It would technically be a breach of the contract terms or a misrepresentation so you'd be leaving yourself open to a (small) risk for no reason.

Banks want to lend money. It earns way more for them if they give it to you than if they don't. If your reasonable living expenses are such that you can make the monthly repayments and you also have the deposit then there's really a tiny chance they'll reject the application.

Allinall

Deleted User wrote: »

There are two issues here:

1. The person giving you the money is entitled to a claim on your property. By providing a % of the purchase price they are entitled in law to a % of the equity in your property. The Bank normally gets round this by having the person giving the money sign a declaration of waiver of interest. But they generally don't like this with non-family because there is no automatic presumption that the money is a gift. However, they'll still do it.

2. Do not lie. You have to set out to the Bank by way of sworn declaration that everything you have said to them is true. Though it's unlikely to affect you down the line why on earth take the chance? It would technically be a breach of the contract terms or a misrepresentation so you'd be leaving yourself open to a (small) risk for no reason.

Banks want to lend money. It earns way more for them if they give it to you than if they don't. If your reasonable living expenses are such that you can make the monthly repayments and you also have the deposit then there's really a tiny chance they'll reject the application.

Where on earth are you getting this from?

cb123

PO!NT wrote: »

I got a mortgage last year. They give you a form for the gift.

Yes, I was sent the gift letter/form template today.

Louis Friend

Lots of nonsense and misinformation on this thread.

The first €3,000 of any GIFT from anyone each year is tax-free.

In addition, €16,250 of gift or inheritances from “strangers” is tax-free.

A bank will just ask the person who made the gift to sign a form stating that is was a gift. This is because otherwise, it’s a loan, and that would mean less ability to repay the mortgage.

One doesn’t have to submit a tax return until one gets to 80% of the €16,250 threshold (even though no tax is payable until the threshold is breached.

So, for example, I can get 100 gift of €3,000 every year from a hundred different people tax-free.

Or, for example, €19,250 from one “stranger” in a given year tax-free.

But the €16,250 is a lifetime allowance.

cb123

Louis Friend wrote: »

Lots of nonsense and misinformation on this thread.

The first €3,000 of any GIFT from anyone each year is tax-free.

In addition, €16,250 of gift or inheritances from “strangers” is tax-free.

A bank will just ask the person who made the gift to sign a form stating that is was a gift. This is because otherwise, it’s a loan, and that would mean less ability to repay the mortgage.

One doesn’t have to submit a tax return until one gets to 80% of the €16,250 threshold (even though no tax is payable until the threshold is breached.

So, for example, I can get 100 gift of €3,000 every year from a hundred different people tax-free.

Or, for example, €19,250 from one “stranger” in a given year tax-free.

But the €16,250 is a lifetime allowance.

Thanks, and thanks to everyone who contributed their input.

The €16250 limit and to declare at 80% is my understanding of the tax, and I don't have to worry as I'm not expecting any more large gifts from non-relatives- unfortunately not a habit of mine

Regarding the letter, the broker sent on the form - it seems simple, declare who they are, our relationship, that it is a gift and want no claim to the property.

I was just taken aback by the broker hesitation when I mentioned the money wasn't from a relative and the small but brief hint that they don't look past the letter regarding where the money came from.

Fingers and toes crossed that the bank will accept the letter and approve the mortgage.

Feisar

Allinall wrote: »

Absolutely not.

The friend gave a gift. They didn't borrow any money.

Any tax implications are totally separate from the mortgage application, and frankly none of the banks business.

If asked and one says it came from family which in this case is a lie do you not think it'd be a great way for the insurer to wheedle out of paying up?

Allinall

Feisar wrote: »

If asked and one says it came from family which in this case is a lie do you not think it'd be a great way for the insurer to wheedle out of paying up?

What insurer?

If it's mortgage protection, then no. The deposit doesn't form any part of the mortgage. It's paid directly to the seller.

Feisar

Feisar wrote: »

If asked and one says it came from family which in this case is a lie do you not think it'd be a great way for the insurer to wheedle out of paying up?

Do insurers ask where you got the deposit?

Louis Friend

Dav010 wrote: »

Do insurers ask where you got the deposit?

What insurers?

chops018

Deleted User wrote: »

There are two issues here:

1. The person giving you the money is entitled to a claim on your property. By providing a % of the purchase price they are entitled in law to a % of the equity in your property. The Bank normally gets round this by having the person giving the money sign a declaration of waiver of interest. But they generally don't like this with non-family because there is no automatic presumption that the money is a gift. However, they'll still do it.

2. Do not lie. You have to set out to the Bank by way of sworn declaration that everything you have said to them is true. Though it's unlikely to affect you down the line why on earth take the chance? It would technically be a breach of the contract terms or a misrepresentation so you'd be leaving yourself open to a (small) risk for no reason.

Banks want to lend money. It earns way more for them if they give it to you than if they don't. If your reasonable living expenses are such that you can make the monthly repayments and you also have the deposit then there's really a tiny chance they'll reject the application.

Allinall wrote: »

Where on earth are you getting this from?

This is it exactly. I'm a solicitor who deals primarily with property. A person who gives someone money towards the purchase of a house may have a beneficial interest in that house. For example, if the back had to repossess the house this person may come out of the woodwork and say that they can't do this unless this person who gave the money is sorted and as they gave the money before the bank did they rank in priority to them. The bank want a first legal charge over the property and receiving a gift of money towards the purchase of the property just throws up uncertainties for them in this regard. As has been mentioned usually a letter stating it's a gift from the donor and that they have no interest in the property is enough. However, sometimes the bank look for a Deed of Confirmation/Postponement which the donor signs postponing any interest or right that they may have in the property and confirming that the banks charge will rank ahead of them.

Feisar

Dav010 wrote: »

Do insurers ask where you got the deposit?

If one was to lie I'm sure the insurer could use it? `I got my insurance through the bank at the time.

tcif

Allinall wrote: »

Any tax implications are totally separate from the mortgage application, and frankly none of the banks business.

Monies potentially owed to Revenue are factored into the banks calculations for repayment capacity / surplus funding as it will alter your financial bottom line when you've paid them (assuming the tax bill is still outstanding at the time of application).

Padre_Pio

cb123 wrote: »

I'm not sure what to do, are that banks that adamant on the money coming from family? Should I bluff and say it came from a parent or play the 'She's my godmother' card, or is that risky. Any advice would be great. I don't want to lie but I certainly don't want to jeopardise my chances of a mortgage because the money didn't come from the 'right' place. HELP!

Banks may also ask the friend to sign a letter waiving their right to any interest in the property.

Louis Friend

It’s been established that the bank want a form signed stating that the monies are a gift.

It’s been established that the gift is less than €19,250, so there’s no tax payable.

This a clear-cut case.

TheChizler

Louis Friend wrote: »

It’s been established that the bank want a form signed stating that the monies are a gift.

I thought this hasn't got past the broker yet?

Personally my own broker wasn't interested in anything older than 6 months.

Allinall

Allinall wrote: »

Where on earth are you getting this from?

Many years of legal practice in this area.

markpb

TheChizler wrote: »

I thought this hasn't got past the broker yet?

Personally my own broker wasn't interested in anything older than 6 months.

They will go further back for larger sums.

Louis Friend

Louis Friend wrote: »

What insurers?

Don’t know myself, I’ve never been asked by an insurer where I got the deposit, that is why I don’t think it matters, but this poster thinks it might.

Feisar wrote: »

If one was to lie I'm sure the insurer could use it? `I got my insurance through the bank at the time.

cb123

TheChizler wrote: »

I thought this hasn't got past the broker yet?

Personally my own broker wasn't interested in anything older than 6 months.

Broker has sent me the gift letter template to be filled out. In the meantime, we are submitting the application. Apparently don't need the letter just yet.

Broker wasn't interested in anything older than 6 months, but I stupidly opened my mouth and said that the money was a gift. It's kinda obvious though. It's sitting there untouched in a separate account to my regular savings. I think it would have sparked questions.

What I've learnt is to be cuter with money. I should have thought it through and moved it around a little to blend better.

My gifter has decided that they are going to fill out the form as my godmother (no prompt on my end, funnily enough) As she said, it looks like there is more of a connection without any ability to trace it.

I was just very surprised and catch off guard yesterday by the brokers reactions. Over complicated it in my head.

cb123

Padre_Pio wrote: »

Banks may also ask the friend to sign a letter waiving their right to any interest in the property.

Handily, the gift letter has that included:
"I do not, and will not, claim to have any rights, title, interest or estate to the Property."

cb123

cb123 wrote: »

What I've learnt is to be cuter with money. I should have thought it through and moved it around a little to blend better.

How have you learned that? They just wanted you to get a letter signed by someone who you've now easily gotten a signature from. It's not a huge deal.

However, the bank has teams of people trained to spot people that are moving money around, it's called layering and it's one of the main steps in money laundering.

Unless you've done something illegal, you have nothing to hide. Trying to hide it just makes you look suspicious unnecessarily.

cb123

true-or-false wrote: »

How have you learned that? They just wanted you to get a letter signed by someone who you've now easily gotten a signature from. It's not a huge deal.

However, the bank has teams of people trained to spot people that are moving money around, it's called layering and it's one of the main steps in money laundering.

Unless you've done something illegal, you have nothing to hide. Trying to hide it just makes you look suspicious unnecessarily.

Very true but when you hear that banks aren't interested in more than 6 months and my broker telling me they don't look at the source of the money regarding the letter. It just seemed in hindsight it might have been easier to say nothing. But then again, that would also lead to stress.

All good now as I mentioned before I just got a fright when the broker said that banks don't like gifts from friends. I saw my deposit being nearly halved and that would set me back a lot.

Hopefully the letter will be accepted with little to no questions.

TheChizler

markpb wrote: »

They will go further back for larger sums.

Larger balances in an account? What kind of numbers are we talking?

Sarn

They don’t tend to go back more than six months. Often a statement might go back a year. But we were never asked for anything more than 6 months on a fairly large sum.

dennyk

cb123 wrote: »

I was talking to my broker today and she was not impressed that a large chunk of my deposit was gifted by a family friend/non-relation stating the banks only like it when it comes from a direct relative.

Most likely it's not a concern about your tax situation, but the nature of the funds themselves. Generally people are far more likely to gift a large sum of money to a close relative than they are to a "family friend" or acquaintance. In the latter case, it's more likely to be a situation where the "friend" expects to be repaid at some point, even if they claim it's a "gift" to the bank. That would be a problem for the bank because that additional debt (which they didn't account for when underwriting your mortgage loan) would have an impact on your ability to repay your mortgage, and there would also be the possibility that the other lender might potentially have a competing claim on your property as a result, depending on the exact terms of your loan agreement with them.

Hopefully your gift letter will sort the issue out, but it's remotely possible the bank might still be suspicious enough of the nature of these "gifted" funds to decline your application.

liam7831

Probably doesn't look great either to the bank that you didn't save the deposit yourself, in regards to ability to pay back the mortgage.

cb123

dennyk wrote: »

Hopefully your gift letter will sort the issue out, but it's remotely possible the bank might still be suspicious enough of the nature of these "gifted" funds to decline your application.

Hopefully not but I'll just have to wait and see.

liam7831 wrote: »

Probably doesn't look great either to the bank that you didn't save the deposit yourself, in regards to ability to pay back the mortgage.

I'm not worried about that. This past year I have saved enough to have my full deposit and any associated costs with buying a house while paying too much for rent! Other than the gift source, I'm in a very fortunate position.

irelandrover

cb123 wrote: »

Very true but when you hear that banks aren't interested in more than 6 months and my broker telling me they don't look at the source of the money regarding the letter. It just seemed in hindsight it might have been easier to say nothing. But then again, that would also lead to stress.

All good now as I mentioned before I just got a fright when the broker said that banks don't like gifts from friends. I saw my deposit being nearly halved and that would set me back a lot.

Hopefully the letter will be accepted with little to no questions.

Aren't you actually in a much more secure situation now as the person who gifted you the money has no legal claim on your property. So its a good thing you got the letter signed.

KeithTS

It's going back a few years now but I used to assess documentation for mortgages.
We looked for any suspicious monies, for instance, if you save €500 a month but at some point your savings jump €3000, I would ask for proof of where that came from. I had to, banks may be shifty but they have a duty to spot laundering and things. They can also request statements from much further back than 6 months if it looks like your savings patterns don't add up.

I can't say how banks act now but in these cases we would simply request a letter from the person stating it was a gift and a signed waiver stating that they will not seek repayment of the money (it's a gift, not a loan). Didn't matter if it was friend or family, however you can get more tax free from family so it's a little easier. If they didn't provide the waiver, the money would be put down as a loan so could affect the amount that could be borrowed and maybe stop the mortgage application dead in it's tracks.

On top of this, depending on the amount or any other gifts received, an affidavit from the borrower would be sought to state that any tax (if any due) was paid. It wasn't complicated but it could set things back a couple of weeks as it's additional paperwork.

As I said, it's been years sine I've done this so things may have changed but I certainly wouldn't lie as there is no reason to and it would look pretty bad if they saw though it. Remember, the bank want to give you the money, it's how they earn, they just want to be sure that A - you'll pay it back, and B - you're not using them to launder money or dodge tax bills.

cb123

irelandrover wrote: »

Aren't you actually in a much more secure situation now as the person who gifted you the money has no legal claim on your property. So its a good thing you got the letter signed.

Very true

KeithTS wrote: »

It's going back a few years now but I used to assess documentation for mortgages.
We looked for any suspicious monies, for instance, if you save €500 a month but at some point your savings jump €3000, I would ask for proof of where that came from. I had to, banks may be shifty but they have a duty to spot laundering and things. They can also request statements from much further back than 6 months if it looks like your savings patterns don't add up.

I can't say how banks act now but in these cases we would simply request a letter from the person stating it was a gift and a signed waiver stating that they will not seek repayment of the money (it's a gift, not a loan). Didn't matter if it was friend or family, however you can get more tax free from family so it's a little easier. If they didn't provide the waiver, the money would be put down as a loan so could affect the amount that could be borrowed and maybe stop the mortgage application dead in it's tracks.

On top of this, depending on the amount or any other gifts received, an affidavit from the borrower would be sought to state that any tax (if any due) was paid. It wasn't complicated but it could set things back a couple of weeks as it's additional paperwork.

As I said, it's been years sine I've done this so things may have changed but I certainly wouldn't lie as there is no reason to and it would look pretty bad if they saw though it. Remember, the bank want to give you the money, it's how they earn, they just want to be sure that A - you'll pay it back, and B - you're not using them to launder money or dodge tax bills.

Thanks for the insight Keith. Much appreciated. Currently getting the letter signed (needs to be witnessed so a slight delay) I've had steady savings, and I'm pretty confident on the tax situation. So hopefully all will be good

KeithTS

cb123 wrote: »

Very true

Thanks for the insight Keith. Much appreciated. Currently getting the letter signed (needs to be witnessed so a slight delay) I've had steady savings, and I'm pretty confident on the tax situation. So hopefully all will be good

No problem.....hopefully it's still valid advice as it's been a while for me
You don't have anything to worry about I'm sure, nearly every mortgage I ever saw draw down had gifts of some sort that made up part of the deposit.

Perhaps before handing anything over to the bank ask a mortgage advisor at that bank whether they accept gifts from non-family as some lenders might not allow it or things may have changed. You could just cold call them and tell them you're getting everything lined up and a family friend wants to contribute to your deposit and ask if they accept that before you apply. No need to tell them who you are if you're nervous about that.

That may be safer than taking a strangers word for it on the internet after all.