Rachel Reeves’ tax plan sees some fork out £800k to avoid huge bills | UK | News

Parents are scrambling to provide house deposits as high as £800,000 to help their children avoid a Rachel Reeves inheritance tax raid.

Last year saw 110,325 homebuyers receive a minimum of £100,000 from family members, marking an 8 per cent rise from 102,546 in 2023, according to data from mortgage technology company Twenty7tec.

The Daily Telegraph has reported that wealth advisers and mortgage brokers are seeing a surge in parents giving six-figure sums to support their offspring’s first step onto the property ladder – simultaneously reducing their future inheritance tax liabilities. This trend extends to grandparents, aunts, and uncles as well, the Telegraph reports.

According to Savills’ analysis, parental gifts and loans for house deposits reached £9.3bn in 2024, almost twice the £5bn recorded in 2019. The average financial aid provided hit a high of £57,317 in 2023, a significant jump from £22,137 in 2006.

Ian Cook from Quilter Cheviot wealth management firm told the Telegraph: “The sentiment is that children are going to get the money anyway, so let’s help them to get preferential interest rates on larger deposits, a bigger house and a smaller mortgage.”

He mentioned that two of his clients are each gifting £150,000 to their children to assist with purchasing their first homes.

A 65 year old ex-business owner has generously gifted £250,000 to his eldest daughter, who is 30, to help with a house deposit. He’s now set to give the same amount to his younger daughter, aged 27, for her own property down payment.

Inheritance tax currently stands at 40% on assets exceeding the £325,000 threshold, known as the nil-rate band. This allowance can be increased by an additional £175,000 when a main residence is bequeathed to direct descendants, such as children or grandchildren.

From April 2027, unspent private pension wealth will be included in estate valuations for inheritance tax purposes, following announcements made in the Chancellor’s October Budget.

The Office for Budget Responsibility forecasts that by 2029-30, 9.7% of estates will be liable for inheritance tax due to these changes, a significant rise from today’s 4%.

These impending changes have spurred taxpayers to either spend or gift their money to minimise their future tax liabilities. The most popular method for tax-free wealth transfer is through the “seven-year rule”, which allows any assets given as “gifts” to become exempt from inheritance tax, provided the giver survives for at least seven years after the gift.

Adrian Anderson from mortgage brokerage Anderson Harris told the Telegraph: “A lot of the deposits I’m seeing are from £200,000 or £300,000 up to half a million. One colleague saw a £800,000 deposit recently.”

Buyers with substantial deposits benefit from needing smaller mortgages and often gain access to better interest rates, as lenders view them as lower-risk borrowers.

The average five-year fixed mortgage rate for buyers with a 10pc deposit is currently at 5.33pc, whereas those who can afford a 40pc deposit enjoy a lower rate of 4.69pc. This difference translates into significant savings on repayments for a £400,000 loan over a 30-year term: £2,229 vs. £2,072 per month, equating to an annual saving of £1,884 for the lower interest rate.

Nimesh Shah from Blick Rothenberg, an accountancy firm told the paper: “The Government has turned the screws on inheritance tax recently which has brought that to the forefront of people’s minds. They’re worried about the seven-year rule being scrapped or lengthened – as it’s quite generous at the moment.”

The Treasury did not immediately respond when contacted by the Telegraph.