Simplifying the tax rules around gifting in the upcoming Budget would help to boost the housing market as well as ease the first-time buyer crisis, Key Later Life Finance has argued.

The equity release adviser suggested that property equity, released by parents and grandparents, can play a “major role” in helping first-time buyers to raise deposits. However, Key did also warn many homeowners could be deterred by the risk of tax clawback.

Estimates have indicated that the number of first-time buyers last year slumped to around 290,000 – the lowest for a decade – and 21% down on the level in 2022.

Last year, customers using equity release gifted around £430m to relatives, but Key believes this could be considerably more given the right tax environment.

The adviser is calling 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.

Under current gifting rules, people can give £3,000 a year without affecting IHT but any larger gifts must be given seven years before death to avoid clawback of IHT. Key has suggested 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.

Group director at Key Group, Will Hale, 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.”

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