Overhauling the tax rules on property wealth gifting in the new Government’s first Budget can help over-50s to expand support for first-time buyers, the UK’s leading equity release adviser Key Later Life Finance says.
The UK’s new Labour government has set itself the bold target of building 1.5 million homes in five years – 50% more than the previous Government managed over the same period – to deal with the critical shortage of housing. Key Later Life Finance believes intergenerational gifting, including more support for the Bank of Family will be central to the government fulfilling its housing objectives.
It is urging Chancellor of the Exchequer Rachel Reeves to consider simplifying inheritance tax (IHT) rules on gifting and specifically to address the seven-year clawback rule in relation to gifts from property wealth. Key warns against higher taxes on the wealth of older generations as much of the wealth is being used to support younger generations.
Data* shows over-50s own 78% of the UK’s property wealth with over-65s holding £2.587 trillion net property wealth and 50 to 64-year-olds £2.213 trillion adding up to £4.8 trillion.
They are even the most likely to move house – the median age** of people most likely to move home is 52.5 years old, highlighting how younger generations struggle to move if they can’t get on the housing ladder to start with.
Key warns that the complexity of IHT rules is deterring over-50s homeowners and over-65s in particular – the groups which make up the Bank of Family – from using their property wealth to fund deposits for first-time buyers and younger relatives.
It believes the October 30th Budget is an ideal opportunity to simplify gifting rules and recognise the role of equity release and later life lending in redistributing property wealth and supporting intergenerational gifting.
A key issue is the potential for IHT penalties if gifts are given seven years before death – the seven-year clawback rule. Key is urging it be removed for gifts from property wealth using equity release.
There are also complex rules on gifting money for weddings and civil partnerships with different tax-free amounts for children and grandchildren. The Budget is a chance to simplify these rules which also include having to declare gifts are being used for deposits by first-time buyers to support older homeowners giving money.
Will Hale, Group Director at Key Group, said: “The new Government has a real opportunity to better support the Bank of Family with its first Budget and make it easier for the older generation to gift property wealth which in turn would make a major difference to the UK housing market.
“The Government’s plan to build 1.5 million houses a year is very welcome but it also needs to ensure people can afford those homes. Recognition for the role of
equity release by older family members in supporting first-time buyers and young families taking their next step up the housing ladder would give a significant boost to the later life lending sector and benefit the overall housing market.
“With the Prime Minister signalling that ‘those with the broadest shoulders should bear the heavier burden’ when it comes to addressing the economic challenges the country faces, there is clearly speculation that IHT tax rates and or threshold levels are set to change. Irrespective of where these decisions land, amendments to the seven-year gifting rule when it comes to IHT would be positively received by many and could encourage increased activity from the Bank of Family. In turn, putting more money into the housing market which would have numerous socio-economic benefits. “
