Key Later Life Finance believes that simplifying the tax rules on gifting in March’s Spring Budget would help boost the housing market and ease the first-time buyer crisis.

The number of first-time buyers last year slumped to around 290,000 – the lowest for a decade – and 21% down on 2022, it is estimated. The equity release adviser argues that property equity, released by parents and grandparents, can play a major role in helping first-time buyers to raise deposits, but warns many homeowners are deterred by the risk of tax clawback. Last year customers using equity release gifted around £430 million to relatives, but this could be considerably more given the right tax environment.

Key is calling on Chancellor of the Exchequer, 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 wants to see 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 seven-year claw back rule on property related gifting. Government data shows IHT receipts rose £400 million to £5.7 billion for April 2023 to December 2023. IHT receipts are forecast to hit £8.4 billion for the 2027/28 tax year.

Current gifting rules are complex – 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 believes that the removal of this rule where it relates to the gifting of property wealth would stimulate older homeowners to gift their own property equity to help younger generations. Whilst downsizing remains an option for many older homeowners to free up housing stock and re-distribute property equity, it can often be an option that remains challenging. With difficulties over suitable housing, the emotional wrench of leaving the family home and the costs associated with moving home, downsizing is often not a straightforward option.

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.”