The number of parents giving six-figure house deposits to their children to avoid Rachel Reeves’s inheritance tax changes has surged in the last two years, experts have said.
Over 100,000 homebuyers received at least £100,000 from a family member last year, according to new data.
Wealth advisers and mortgage brokers report a rise in parents making substantial gifts to help children get on the property ladder while simultaneously reducing their inheritance tax bill.
Some 110,325 homebuyers received at least £100,000 from a family member last year, up eight per cent from 102,546 in 2023, according to the mortgage technology firm Twenty7tec.
Inheritance tax can be reduced by giving gifts – but rules do apply GETTYThe trend also extends to grandparents, aunts and uncles who are providing financial assistance to younger family members.
Gifts and loans from parents used for house deposits totalled £9.3billion in 2024, nearly double the £5billion recorded in 2019, according to analysis by estate agency Savills.
The average value of parental assistance reached a high of £57,317 in 2023, up significantly from £22,137 in 2006.
More than half (57 per cent) of mortgaged first-time buyers received some financial support in 2023, the highest proportion since 2012.
A total of £30billion is expected to be paid out between 2024 and the end of 2026 as parents continue to help their children secure property.
Ian Cook, of wealth management firm Quilter Cheviot, said: “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.”
Two of his clients are each giving £150,000 to their respective children for first home purchases. Another client, a 65-year-old former business owner, has given £250,000 to his eldest daughter and plans to give the same amount to his younger daughter.
Adrian Anderson, of mortgage broker Anderson Harris, reported seeing deposits ranging “from £200,000 or £300,000 up to half a million.” One of his colleagues recently handled an £800,000 deposit.
Some brokers have seen gift deposits as high as £800,000
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Inheritance tax is levied at a rate of 40 per cent on all assets above a £325,000 threshold, known as the nil-rate band. The allowance increases by £175,000 when a main residence is left to direct descendants, such as children or grandchildren.
Under changes announced in the Chancellor’s October Budget, unspent private pension wealth will also be counted as part of an estate for inheritance tax purposes from April 2027.
The Office for Budget Responsibility expects that 9.7 per cent of estates will pay inheritance tax by 2029-30 as a result of the changes, up from four per cent today.
The “seven-year rule” allows assets passed on as gifts to be tax-free if the giver lives for at least seven years afterwards. Having a large deposit means buyers need smaller mortgages and can benefit from preferential interest rates as lenders consider them less risky.
The average five-year fixed mortgage rate for buyers with a 10 per cent deposit is 5.33 per cent, compared with 4.69 per cent for those with a 40 per cent deposit.
Some parents are giving large sums to children who already own homes but want to move to larger properties
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Repayments on a £400,000 loan with a 30-year term would be £2,229 and £2,072 respectively, saving those on the lower rate £1,884 a year.
However, first-time buyers aren’t the only beneficiaries of parental generosity as some parents are giving large sums to children who already own homes but want to move to larger properties.
Others are using six-figure gifts to help absorb higher interest rates when children remortgage. The tax changes have prompted many to spend or give away their money to reduce their tax bill.
Anderson said: “A lot of the deposits I’m seeing are from £200,000 or £300,000 up to half a million.”
One of his clients received £150,000 from parents to help cushion the blow of moving to a higher mortgage rate.
Nimesh Shah, of accountancy firm Blick Rothenberg, said: “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.”
