Simplifying the tax rules on gifting in the March Spring Budget would help boost the housing market and ease the first-time buyer crisis, Key Later Life Finance has urged.
According to recent data, the number of first-time buyers last year slumped to around 290,000 – the lowest for a decade – and 21% down on 2022.
Key said that property equity, released by parents and grandparents, could play a major role in helping first-time buyers raise deposits, but warned that many homeowners would be deterred by the risk of tax clawback.
Last year, customers using equity release gifted around £430m to relatives, but this could be considerably more given the right tax environment.
Key called on Chancellor Jeremy Hunt to recognise the role of equity release in redistributing property wealth and boosting the housing market while easing the burden on first-time buyers.
It also called for the Chancellor make it easier for parents and grandparents to gift money to children and grandchildren and avoid potential Inheritance Tax (IHT) penalties by removing the 7-year claw back rule on property related gifting.
Government data found that IHT receipts rose £400m to £5.7bn for April 2023 to December 2023.
IHT receipts are forecast to hit £8.4bn for the 2027/28 tax year.
Under the current gifting rules, people can give £3,000 a year without affecting IHT but any larger gifts must be given seven years before death in order to avoid clawback of IHT.
Key said that the removal of this rule where it relates to the gifting of property wealth would prompt older homeowners to gift their own property equity to help younger generations.
While downsizing remains an option for many older homeowners to free up housing stock and redistribute property equity, Key warned that it can be challenging, due to difficulties finding suitable housing, leaving the family home, and the costs associated.
There are also complex IHT rules on gifting money for weddings and civil partnerships with different tax-free amounts for children and grandchildren.
People can potentially give unlimited amounts as long as they can prove it comes from surplus income and giving the money away does not affect their standard of living.
Giving money for education, such as university fees, however, counts as a gift.
There is also potential to simplify these rules to give confidence to older homeowners to transfer wealth for these uses.
Will Hale, group director at Key Group, said: “Equity release has an important role to play in making the UK’s housing market work better for first-time buyers and their parents and grandparents.
“There is a significant opportunity to grow the transfer of property wealth from older generations to younger to support the wider housing market.
“The Government has set out plans to turbocharge housebuilding which are very welcome, but the market will also benefit from releasing the wealth tied up in existing properties and that process needs to be made much easier.
“Recognition for the role of equity release in supporting first-time buyers and some much-needed changes to IHT gifting rules to make it easier to give money, would be a major boost for everyone in the market now, as well as helping future generations.”
