Britons take out mortgages to save cash in latest death levy loophole

Borrowers appear to be primarily using the loophole to take mortgages out on a property which is owned outright.

It is then possible to give the cash from the mortgage to their children.

If the payer does not pass away within the following seven years then the gift is tax-free.

The value of the outstanding mortgage is deducted from the overall value of the person’s estate when they later die.

The move reduces the amount of inheritance tax liable.

The value of mortgages taken out by borrowers aged 61 and over soared by 24 per cent from £11.3billion in 2021 to £14billion in 2022, the i has claimed.

Financial advice firm Bowmore Financial Planning revealed more lenders are willing to lend to over-60s due to rising property prices and the recent freeze of tax thresholds.

Mark Incledon, chief executive at the company, said that taking out a mortgage and gifting this money “can be an effective part of inheritance tax planning”.

He added: “This way, you are able to give them a tax-free buffer to enjoy more of the inheritance you have provided for them.”

The news of a mortgage loophole comes after it was revealed that a record-number of Britons are now liable to pay inheritance tax.

More than 40,000 people are now liable to pay inheritance tax, up from 33,000 in the previous financial year.

The change is almost double the number coughing up cash for the death duty in 2018/19, figures from His Majesty’s Revenue & Customs released in April have shown.

Data released earlier this week revealed death levy receipts reached an all-time high of £7.1billion.

The previous high was recorded in 2021/22 when £6.1billion was raised.