You might be thinking about the future of your property, and how it can help younger generations get on the property ladder. But, a complex system of inheritance tax rules is actually making it harder for families to help each other.
The Inheritance Tax Trap
Inheritance tax (IHT) is the tax charged on your estate when you die. This includes your home. And if you want to gift your home to a younger family member before you die, there’s a strict “seven-year clawback” rule, which means the government could still tax you on it if you don’t live for seven years after giving the gift!
This makes it incredibly difficult for families to help each other out, particularly with first-time buyer deposits. Many people over the age of 50 would like to help their children buy homes, but the complex rules are deterring them.
The Power of the “Bank of Family”
Experts are calling for the government to make changes to the inheritance tax rules to make it easier for families to share wealth and help each other.
They say that by making changes to the inheritance tax rules, the government could create a more supportive environment for the “Bank of Family”.
What is the “Bank of Family?”
Simply put, the Bank of Family is when parents and grandparents help their children and grandchildren with money for their homes. This can take many forms – gifting money upfront, or even a low-interest loan. It is already a key way for younger people to get onto the property ladder.
How can the government help?
Here are some ideas:
- Simplifying the rules: The current inheritance tax rules are complicated and confusing for many people. The government could make the system simpler, and remove the seven-year clawback rule.
- Supporting “equity release”: Many older people are using equity release to tap into the wealth in their homes. The government could make it easier for people to use equity release to help younger family members.
A Win-Win Situation?
Experts believe that making these changes could help more young people get onto the property ladder. It could also help older people feel confident about using their wealth to help their families.
Why is this so important?
The average age for a house move is around 52 years old, and data shows that over 50s own 78% of UK property wealth, holding a whopping £4.8 trillion in property wealth! The government has a goal of building 1.5 million new homes over the next five years, but if young people can’t afford to buy them, it will be difficult to achieve this target.
The government is being urged to make a change to these rules in the upcoming Budget. It’s a chance to help families and make a real difference to the housing market.