Prove Source of Funds
Under UK Anti Money Laundering laws when buying a property in the UK you will be asked to prove source of funds. The funds could be a deposit or the whole purchase cash amount.
The reason for this is to stop Money Laundering. (Money Laundering is the illegal activity of using criminal money to make large purchases then selling the item to show the new money from the sale as 'clean')
Agents not doing all Anti Money Laundering procedures could face severe penalties.
Guilty until proven innocent
When looking to prove the source of your funds it may feel like you are guilty until proven innocent.
Sadly this is the case and it is your responsibility to prove this money didn't come from the proceeds of crime.
You may feel aggrieved that after all of the years spent saving that this is unfair and question why should you have to provide all this information.
The answer to this is that with so much fraud within conveyancing it is essential agents and solicitors become even more vigilant, however, to do so they should provide you with clear guidance on what information they'll need in order to satisfy themselves of the source of your funds.
During the moving process, the onus is on the buyer to provide adequate proof of the source of their funds to their estate agent and solicitor in order to purchase the property from the seller. The different scenarios for proof of funds can be categorised into:
- Savings
- Sale of shares
- Release of pension
- Sale of another property
- Inheritance
- Gift from parents (Gifted Deposits)
- Dividends from a UK company
- Compensation award
- Gambling winnings
Make sure to check what your agent requires
Agents have varying policies for proving the source of funds. The following examples are a best practice guide and may vary depending on your solicitor's own Money Laundering Procedure.
1 Savings
Savings are regular small payments from an income such as a salary, pension or an annuity. The best evidence for this will be six months' bank statements showing you getting paid from your employer/pension/annuity and the money slowly growing in your bank account. If you have multiple bank accounts for your savings then provide six months' bank statements for each of the bank accounts.
2 Sale of shares
A copy of the share release schedule and a copy of your bank account statement showing the money being received from the company.
3 Release of pension
A copy of your pension statement and a copy of your bank account statement showing the money being received from the pension company.
4 Sale of another property
A copy of the completion statement from your solicitor and a copy of your bank account statement showing the money being received from the solicitor following completion.
5 Inheritance
A copy of the letter from the executors stating how much you are being paid as a beneficiary and a copy of your bank account statement showing the money being received from the solicitor/executor's bank account.
6 Gift
A letter from the giftee confirming that the money you are providing is a gift and that you have no rights over the property. A signed letter to the buyer should suffice and a copy of this should be supplied to their conveyancing solicitor.The process of proving a gift is incredibly important as it evidences that the money no longer belongs to the party who has given the money and as such there can be no future claim to a beneficial interest or right to the property.
7 Dividends from a UK company
A copy of your dividend certificate, a copy of the company's accounts and a copy of your bank account statement showing the money being received from the company.
8 Compensation award
A copy of your letter confirming your compensation settlement from a solicitor and/or court and a copy of your bank account statement showing the money being received from the third party/court/solicitor.
9 Gambling winnings
A copy of your receipt proving your winnings and a copy of your bank account statement showing the money being received from the gambling company. You will struggle to prove the source of funds if the winnings were in cash (see below). Gambling is a red flag to a mortgage lender! If you are applying for a mortgage you may encounter challenges if you are a regular gambler. Mortgage lenders see gamblers as a high risk and there may be some mortgage lenders who refuse your application based on this.
If your money has been generated through other means please let us know.
Most solicitors do not accept cash as it is almost impossible to prove the source of the funds.
If you have a large sum of cash and pay it into your bank account to pay to your solicitor then you will still struggle to prove the source of those funds.
Part of the new Money Laundering Regulations require agents and solicitors to assess which country the source of funds originates from.
There are a number of countries where some solicitors decline instructions from clients or a beneficial owner because they are resident in, or have a substantial connection to, a high-risk country or relevant assets are in a high-risk country.
The Money Laundering Regulations define all countries as high risk EXCEPT the following: Australia, Austria, Belgium, Canada, Cyprus, Denmark, Finland, France, Germany, Greece, Hong Kong, Iceland, Japan, Republic of Ireland, Italy, Luxembourg, Malta, The Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, UK or the USA.