If the new Inheritance Tax (IHT) proposals by the ‘All Party Parliamentary Group’ (APPG) go ahead, mums and dads intending to help their children get a ‘foothold’ on the property ladder need to consider carefully how they proceed.
As with so many tax reforms that are ‘intended to help us,’ the new IHT proposals are very much a case of ‘giving with one hand and taking away with another!’
Concerned with the increasing amount of middle-class families that find themselves being dragged into the current 40% IHT rate – largely due to escalating property values, a new flat rate of 10% is proposed – increasing to 20% for estates over £2 million. Whilst this might be considered a good thing, you also need to be aware that within the same proposals, the 7 year rule, which allows gifts of £3000 and writes off larger amounts if the donor lives longer than 7 years, would be replaced by an annual £30,000 allowance.
With the average house costing £240,000, a typical 15% deposit covered by parents would entail a ‘gift’ of £36,000. Under the new proposed £30,000 allowance and 10% flat rate IHT scheme, parents would be left with a bill of £600.
These IHT proposals could also have serious ramifications for the property market; particularly when you consider that the number of first time buyers has presently eclipsed the property boom levels of 2007 and that 40% of these FTB’s rely on help for their deposits from their parents. This increases to 45% and 60% in the South East and London respectively.
For advice on all IHT matters and the best way to assist your children, get in touch with Dunham McCarthy.