Gifted Deposit, Dead Parent, Siblings Who Want Their Share

If your parents gave you the deposit for your house, then when they die the money stays yours. A completed gift belongs to the person who received it. You do not hand it back, the estate cannot reclaim it, and no sibling can insist on it being returned simply because they feel the split was uneven.

But it can still count, and this is where families come unstuck. A gifted deposit can resurface in two quite different ways. The first is inside the estate itself: a will can direct that lifetime gifts are taken into account when the estate is divided, so your share is reduced by what you already had. The second is tax: if a parent dies within seven years of making the gift, it is counted before the estate is, which can increase the inheritance tax the rest of the family pays even though your money is untouched.

Those two mechanisms are independent. It is perfectly possible for a gift to be completely irrelevant to how the estate is divided between you and your siblings, and at the same time to have made the tax bill on that estate larger. Understanding which one is being raised — fairness or tax — is the first step in a conversation that otherwise goes badly.

The short answer: the money is yours, but it can still count

Start by separating three questions that get mashed together at kitchen tables: do I have to repay it, does it reduce my share, and does it affect the tax.

You have to repay it only if it was never a gift at all but a loan. That is a separate argument with its own evidence, and it hinges on what was recorded at the time — a signed note, a repayment schedule, or the declaration a mortgage lender required confirming the money was not repayable.

It reduces your share only where something makes it reduce your share: an express clause in the will, or a specific rule of English law about parents and children that is explained below. Otherwise the estate is divided according to the will as written, and the fact that you were helped ten years ago does not change the arithmetic.

It affects the tax if your parent dies within seven years of the gift. That is a mechanical calculation and it does not care what anyone intended. It is also the part that most often produces genuine unfairness between siblings, because the cost usually falls on whoever inherits the remainder of the estate rather than on the person who received the gift.

When a will brings the gift back into account

A well-drafted will can do exactly what a parent wants here. If they gave you a deposit and want your brother and sister to be levelled up, the will can say so — either by giving the others a matching amount before the residue is divided, or by directing that the earlier gift is treated as an advance on your share. Wording of that kind is common and it works.

Without it, the will means what it says. "Divide my estate equally between my three children" divides what exists at the date of death, equally, between three children. It does not silently reopen a transfer made years earlier. If your parents wanted the deposit taken into account, that was a decision for them to record, and their failure to record it is not evidence that they wanted it.

There is one exception in England and Wales that catches people out. Where a parent has made a substantial lifetime gift to a child to help set them up in life — a house deposit is the classic example — and the will also leaves that child a legacy of a similar character, the law can presume that the lifetime gift was intended to satisfy the legacy rather than to be additional to it. It is a presumption, it can be rebutted by evidence, and it does not apply to ordinary gifts or to gifts between people who are not parent and child. But it exists, and it is the strongest legal argument a sibling can make.

Wills that deal with property need care for other reasons too. If a parent leaves a house to one child and the residue to the others, any mortgage on that house travels with it unless the will says otherwise, which can distort the split entirely: see why a house left in a will comes with the mortgage attached.

If there is no will: what intestacy does with a lifetime gift

Where a parent dies without a will, the estate passes under the intestacy rules, which set out a fixed order of entitlement. Those rules used to require children to bring lifetime advances into account before sharing what was left — the old hotchpot rules. They were abolished for deaths on or after 1 January 1996 in England and Wales.

So for any modern intestacy, the ordinary position is that the estate is divided without any backward look at what each child was given during their parent's lifetime. Your sibling may consider that unjust. It is nevertheless the law, and an executor or administrator who ignored it and reduced your share to even things up would be acting outside their powers.

That is not the same as saying nobody can ever challenge an intestacy. A person who was financially maintained by the deceased can apply to the court for reasonable provision from the estate, and stepchildren, cohabitants and adult children in real financial need occasionally succeed. A sibling who is simply aggrieved about a deposit is in a much weaker position, but it is worth knowing that a route exists.

Where the family home is the main asset and both parents have now died, the ownership question can be more tangled than anyone expects — see who ends up owning the house when both parents die, and how long anyone living there can stay after a death.

The seven-year rule, and the bill the rest of the family may pay

A gift made by someone who then lives for seven years falls out of their estate entirely for inheritance tax. Die sooner and it is added back at the start of the calculation, before the estate itself, and it uses up the tax-free allowance first.

That ordering is the sting. Suppose a deposit was given three years before death. The allowance is applied to the gift first. Whatever the gift consumes is no longer available to the estate, so more of the estate is taxable. The person who received the gift keeps every penny of it; the extra tax is generally paid out of the estate, which means it is borne by whoever inherits the remainder. If that is your siblings, the gift you were given has cost them money — and that, far more often than any question of principle, is what the argument at the solicitor's office is really about.

The current allowance and the rate that applies above it are set by HM Revenue and Customs. The nil-rate band is £325,000 per person, and inheritance tax is charged at 40% on the value above the available allowance. There is an additional residence allowance where a home passes to children or grandchildren, and unused allowance can generally be transferred between spouses and civil partners, both of which mean that many estates pay nothing at all.

Where a gift is large enough to exceed the allowance on its own, tax is due on the gift itself, and taper relief reduces that tax on a sliding scale.

Source: HM Revenue and Customs, Inheritance Tax guidance published on gov.uk under the Open Government Licence v3.0.

Two things are widely misunderstood about that table. Taper relief reduces the tax payable on a gift, not the value of the gift set against the allowance — so where the gift sits within the allowance there is no tax to taper, and the seven-year clock still matters for the estate. And where tax is due on a gift, the person who received it is primarily liable for it. The mechanics of the clock, including gifts that are exempt from the outset, are set out in the seven-year clock on a gifted deposit from your parents.

None of this changes the practical problem that tax is due before a house can usually be sold to pay it: see what happens when the inheritance tax bill lands before the house can be sold.

The other way a gift resurfaces: care fees

Inheritance tax is not the only place a deposit can come back. If a parent later needs residential care and asks the local authority for help with the cost, the council carries out a financial assessment. Where it concludes that assets were given away in order to reduce care charges, it can treat the person as still holding them and assess them accordingly. In some circumstances it can also seek payment from the person who received the gift.

There is no fixed cut-off for this. The seven-year rule is an inheritance tax rule and has nothing to do with care fees, which is one of the most common and most expensive misunderstandings in this area. What matters instead is what a reasonable view of the parent's intentions and health at the time of the gift suggests. A deposit given to a healthy parent's child a decade before any care need arose looks very different from one given weeks after a diagnosis.

The rules on charging for care are set separately in England, Wales, Scotland and Northern Ireland, so anyone facing this should check the position for the nation where the parent lives rather than the one where the child does.

What to do when a sibling raises it after the funeral

These conversations turn poisonous fast, and they are almost always cheaper to solve in the first month than in the sixth.

Start by finding the documents rather than defending your position. The will, any letter of wishes kept with it, the solicitor's file, the gifted deposit declaration given to your mortgage lender, and the parents' own records will usually answer the question. If the will says nothing and the gift was more than seven years before the death, there is often simply no issue to argue about, and showing that quietly is better than winning an argument loudly.

If the will does bring the gift into account, or the estate faces extra tax because the gift was recent, deal with the numbers openly. Where everyone inheriting is an adult and agrees, the family can rearrange the outcome by agreement and record it formally, and there are time limits on doing that in a way that works for tax — so raise it with the solicitor administering the estate early. Delay is expensive in its own right, particularly where the estate holds a property with a mortgage still running: see how long a mortgage can stay in a dead person's name.

If you are reading this as the parent, the fix costs nothing. Write down at the time whether money is a gift or a loan and sign it. Say in the will whether it should be taken into account. Tell all your children the same thing, once, while you are alive. And where the plan for fairness depends on there being enough left in the estate to level everyone up, be honest about whether that money will actually be there — cover written for that purpose is one way of making sure the promise survives you. You can get life insurance quotes through an FCA-authorised broker, with any offer subject to underwriting.

Scotland and Northern Ireland

Inheritance tax is a UK tax and the seven-year rule applies identically across all four nations. Succession law does not.

Scotland is the significant difference. Children have legal rights in a parent's moveable estate — broadly, everything other than land and buildings — which cannot be defeated by a will. Scots law also retains a doctrine of collation, under which advances a parent made to a child during their lifetime can be brought into account when those legal rights are calculated between the children. In other words, the argument that English law abolished for intestacy in 1996 still has a real foothold north of the border, and a Scottish solicitor should be the first call rather than a general guide.

Northern Ireland has its own succession and administration of estates legislation, its own land registration system and its own court rules, though the broad shape of the position on lifetime gifts is closer to England and Wales than to Scotland. Free and impartial help is available from MoneyHelper and Citizens Advice across the UK. The rest of this topic is collected in our guide to mortgages and property when someone dies.

Frequently asked questions

Does a gifted deposit come off my share of the inheritance?

Only where the will says so, or where the rule against double portions applies to a substantial lifetime gift made to set a child up in life. The old intestacy hotchpot rules were abolished for deaths after 1995, so an intestate estate is normally divided without looking back at earlier gifts at all.

Does the gift affect inheritance tax when my parents die?

A gift falls out of the estate entirely if the person who made it survives seven years. If they die sooner, the gift is set against the nil-rate band first, which can increase the tax the rest of the estate pays even though you keep the money itself. That is why a gift can cost your siblings something without costing you anything.

How can parents stop the children arguing about it?

By recording clearly at the time whether the money was a gift or a loan, and by saying in the will whether it should be taken into account when the estate is divided. A letter of wishes kept alongside a properly drafted will prevents most disputes of this kind before they start.