Key Later Life Finance, equity release advisor, highlights the significant downturn in first-time home purchases, with figures dropping to a decade low of approximately 290,000 in the last year, a 21% decline from 2022 – further underscoring the potential of equity release from older generations to aid first-time buyers in securing deposit.
2023, equity release facilitated £430 million in gifts to relatives, a figure that Key suggests could increase with tax reform. The company urges a re-evaluation of the current tax policy regarding gifting in the upcoming Spring Budget, specifically advocating for the abolition of the seven-year clawback rule for property-related gifts. Commenting on the upcoming Spring Budget, Clive Pointon, Head of Wills, Trusts, and Tax at legal firm Aaron & Partners, said:
“With a General Election approaching, March’s Spring Budget will likely see the Chancellor face even more pressure to announce tax cuts, and address rumours around changes to Inheritance Tax.
The Conservatives share a similar stance on income tax with Labour and have made several recent changes to Capital Gains Tax. This leaves Inheritance Tax as the obvious issue to use to distance themselves from their political rivals. Whether a change that benefits those with capital in excess of £1M is a vote winner is another matter.There has been speculation suggesting a reduction from the current 40% rate. However, as the UK has officially entered a recession, any future tax landscape is an uncertain one. As such, we recommend to act now while we are in a climate we understand. A positive change would be to action a further reduction of National Insurance for both employers and employees. It feels counterintuitive to tax jobs in the midst of a productivity crisis.”
This move, Key argues, would not only facilitate the redistribution of property wealth but also invigorate the housing market and alleviate the challenges faced by first-time buyers. Despite a rise in IHT receipts to £5.7 billion from April to December 2023, with projections reaching £8.4 billion by the 2027/28 tax year, Key believes that simplifying the gifting rules could encourage more homeowners to contribute to their descendants’ property acquisitions.
Currently, the gifting framework allows for £3,000 annually without IHT implications, but larger sums necessitate a seven-year gifting lead time to avoid taxation. This rule’s elimination, particularly regarding property equity gifts, could stimulate increased financial support from older homeowners to younger generations. Despite downsizing being an alternative for property equity redistribution, it presents challenges such as finding suitable housing, emotional attachment to the family home, and the financial burdens of moving.
Key also points out the complexity of IHT rules concerning gifts for weddings, civil partnerships, education, and the potential for rule simplification to encourage wealth transfer for these purposes. The organisation stresses the importance of equity release in enhancing the housing market’s efficiency, advocating for governmental recognition and policy adjustments to ease the process of monetary gifting and support the market’s growth, including the facilitation of property wealth transfer across generations.
