The most expensive Christmas gift: when property ‘gifts’ end up in court

Every year after Christmas, disputes arise not only over jewellery and cash, but over far more valuable ‘gifts’ connected to property. Contributions towards deposits, transfers of legal title, or funding renovations given in the spirit of generosity can later become the subject of litigation when relationships break down. In England and Wales, these disputes are frequently determined under the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA).

While retailers may accept festive returns, the law takes a much stricter view of gifts between individuals – particularly where land is involved. Once property rights are created, they can be difficult and expensive to unwind.

When might a property ‘gift’ be reversed?

Conditional gifts and property

Some gifts are conditional, meaning they are given on the basis that a particular event will occur. The classic example is an engagement ring, which may be reclaimed if the marriage does not go ahead, under section 3(3) of the Law Reform (Miscellaneous Provisions) Act 1970.

In property disputes, conditional gifting often arises where money is provided for a specific purpose. For example, a parent may give £50,000 to their child on the express understanding that the child will use that money to buy a particular property.

In certain circumstances, monies transferred to someone for a specific purpose can give rise to a ‘Quistclose trust’, provided it is clear that the monies are to be applied for that specific purpose and nothing else. The significance of a Quistclose trust is that the funds remain the property of the transferor unless the recipient applies them for the specified purpose. The recipient is not free to use the funds as they please.

If the recipient becomes insolvent before applying the funds for that purpose, those funds cannot be used to satisfy its creditors. For this reason, cases involving Quistclose trusts are often insolvency cases or cases where it is necessary to establish who is the beneficial owner of the funds following failed investments or fraud.

Contributions to property and common intention

In other common scenarios, a gift of money may be given for the purchase of property, but the underlying intention for the money is unclear. For instance, did the parent intend to give the money as a gift, was it intended as a loan, or was it meant as an investment into the property which acquired them a share in the property.

Where the child is also obtaining a mortgage to fund the purchase, the parent will usually be asked by the bank to sign a gifted deposit form. Presented as a normal – and required – part of the conveyancing process, such forms will typically be signed without a moment’s thought. However, the form can later be relied upon by the child to show that the money was intended as a gift, even if the reality was rather different.

Where the intention behind the contribution is unclear or disputed, disputes frequently arise under TOLATA as to the status of the ‘gift’ and whether the contributor has a beneficial interest in the property.

Lack of mental capacity

If it is shown that a gift was made by a person lacking mental capacity, that gift can be reversed.

It is assumed that a person has mental capacity unless it is proven otherwise. It is possible that a person may lack capacity for complex decisions, such as the giving of large gifts, whilst retaining capacity for smaller, simpler decisions. That is because mental capacity is decision specific.

Undue influence and property transfers

Undue influence is a frequent feature of disputes involving family homes. It arises where a person is pressured – overtly or subtly – into transferring property or money.

Courts are particularly alert to situations where:

• the recipient manages the donor’s finances
• the donor is elderly or vulnerable
• the transaction is significant or departs from previous intentions.

For example, if a parent transfers their home to one child who assists with their finances, excluding their other children, the court may consider that the transaction calls for an explanation and explore whether undue influence was used to bring about the transfer.

Such disputes often culminate in TOLATA claims or related trust and estate proceedings.

Disputes about intention

At the heart of many TOLATA claims is intention.

A gift requires clear intention to transfer ownership and acceptance by the recipient. Where intention is disputed, the court will examine the surrounding circumstances, with the donor’s intention being key.

A cash gift accompanied by a card saying “for you” is likely to be treated as an outright gift. By contrast, a payment made towards a property purchase, renovation, or mortgage – without clear explanation – may be construed as a loan or as creating a beneficial interest.

Informal family arrangements often lack written records. When relationships sour, these informal understandings are tested under TOLATA, sometimes many years later.

Practical advice to avoid property disputes

Ultimately, the law makes it clear that gifts are intended to be permanent transfers of ownership. While there are rare circumstances – such as fraud, undue influence, lack of capacity, or clearly stated conditions – where a gift can be reversed, these exceptions are narrow and often difficult to prove. For most people, once a gift is made and accepted, it belongs to the recipient.

To minimise the risk of TOLATA litigation, do the following:

• record intentions clearly when contributing to property
• specify whether money is a gift, loan, or investment
• consider declarations of trust for significant contributions
• obtain independent legal advice for major transfers of property.

While the festive season encourages generosity, clarity at the outset can prevent costly and emotionally draining disputes later. When it comes to property, a ‘gift’ may last far longer than Christmas – and so can the litigation that follows.