When purchasing property in England and Wales, one of the crucial steps is the proof of funds check. This process is not only a standard practice but also a legal requirement aimed at preventing money laundering, ensuring that the funds used for property purchases are legitimate.
Reason for Proof of Funds Check and Relevant Legislation
The primary reason for a proof of funds check is to comply with the UK’s anti-money laundering (AML) regulations. The key legislation underpinning these checks is the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. Under this legislation, conveyancers are legally obligated to verify that the money used to buy a property comes from a legitimate source. Failure to comply with these regulations can lead to severe penalties, including fines and even imprisonment.
The fund check process
The proof of funds check begins once an offer on a property is accepted. The buyer’s conveyancer/solicitor will request evidence of the source of the funds intended for the purchase. This can include personal savings, inheritance, or proceeds from a previous property sale. The conveyancer will examine the provided documentation from the buyer to ensure it matches the amount required for the purchase and that it aligns with the buyer’s financial profile. Additionally, the conveyancer may perform further checks to verify the authenticity of the documents. If the funds are coming from multiple sources, proof for each source is required. The process can take several days to weeks, depending on the complexity of the buyer’s financial situation.
Common Sources of Funds
Buyers typically use a variety of sources to finance their property purchases. Five common sources include:
- Savings (for a certain period of time)
- Proceeds from the sale of an existing property
- Inheritance
- Gift money from family
- Investment returns
Required Documentation for Each Fund Source
For each of the sources mentioned above, the following documents are typically required:
1. Savings: Buyer’s bank statements for a certain period of duration, showing consistent savings or build-up of funds. There is no specified legal requirement how long the duration should be precisely. Different firms may have different requirements; however, it should normally be reasonably long enough to show how the funds have been built up. For fixed deposit, a certificate of the deposit is acceptable as well.
2. Proceeds from Property Sale:
- A copy of the contract / transfer in related to the transaction
- A copy of the completion statement/letter issued by the law firm acting for your sale, showing the net proceeds received.
- The bank statement showing receipt of the net proceeds
3. Inheritance:
- A copy of the grant of probate
- The bank statement showing receipt of the inheritance money
4. Gift money:
- A letter duly signed by the giftor stating that the gift money is non-refundable and not expected to be repaid, along with evidence showing the legitimate source of the giftor’s funds and the transfer
- ID documents of the giftor
- the buyer’s bank statement showing receipt of the gift money transfer
5. Investment Returns: Statements (for the past 6 months) from the investment account showing the amount of dividends or returns received.
Conclusion
Proof of funds checks are an essential part of the conveyancing process in the UK, ensuring that the money used in property transactions is legitimate and compliant with legal requirements. Buyers should be prepared to provide comprehensive documentation to verify their source of funds, which will not only expedite the process but also ensure a smooth transaction.
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