The Telegraph is continuing its criticism of Labour taxation on property owners, stating that Britain’s fragile property market is increasingly reliant on the Bank of Mum and Dad – but that lifeline may soon be curtailed.

The article can be read here, and goes on to say that reports suggest Labour is considering a major inheritance tax reform that would cap the value of gifts a person can pass on tax-free during their lifetime. Such a move, experts warn, could upend the home-buying dreams of a generation and depress house prices.

Currently, parents can gift unlimited sums to children provided they survive for at least seven years after the transfer. Under the proposed changes, large financial gifts – including contributions towards property deposits – would count as part of the donor’s estate for inheritance tax purposes.

A slowdown in first-time buyers

Nicholas Mendes, of mortgage broker John Charcol, said restricting tax-free gifts would choke off parental support and leave fewer buyers able to enter the market.

“This would mean fewer buyers entering the market, which in turn would slow transaction volumes and dampen price growth at the lower end,” he explained.

Over half of first-time buyers already rely on parental help, according to Savills. Last year alone, gifts and loans from family amounted to £9.6 billion, supporting nearly 173,500 buyers with an average contribution of £55,572.

Any curtailment, experts say, would ripple up the chain. “Each rung depends on the others,” said Roarie Scarisbrick of buying agent Property Vision. “The problem over the last few years is that taxes, like stamp duty, have really clogged up the chain. Anything that slows first-time buyers has a knock-on effect for everyone else.”

London and the South hit hardest

Support from parents is most critical in high-cost regions. Aneisha Beveridge, head of research at Hamptons, said: “It’s in areas like London and the South East, where buyers typically receive larger gifts, that a cap on tax-free transfers would bite hardest.”

The average first-time buyer deposit in London now stands at £137,863 – more than double the £68,631 required in the South East, and over five times the £26,858 in the North East.

Lucian Cook, of Savills, noted that the average London deposit equates to 138% of a typical first-time buyer’s annual income: “It’s far beyond what most buyers can save independently. Without help from family, ownership in the capital becomes almost impossible.”

Beyond first-time buyers

It isn’t only new entrants to the market who would be affected. Adrian Anderson, of mortgage broker Adrian Harris, said: “I recently arranged a mortgage for a next-time buyer where the parents gifted £300,000. These rules would hit not just first-time buyers but families looking to move into their ‘forever’ home.”

Wealth manager Richard Cook of Rathbones added that grandparents, too, would be caught: “The Bank of Grandma and Grandpa often makes the difference between dream and reality. These changes would tangle that generosity in new layers of estate-planning complexity.”

Risk of market distortion

Some analysts warn the rumour alone could distort the market. Mendes suggested speculation might spur a short-term surge in demand as families rush to complete purchases before reforms are introduced, temporarily pushing prices up.

But the uncertainty itself is already cooling demand. Simon Shaw, finance chief at Savills, said: “In the interim period, it creates a level of uncertainty in the residential market. People fill the vacuum with their own fears about what might happen.”

Treasury response

A Treasury spokesman said no decisions had yet been made: “As set out in the Plan for Change, the best way to strengthen public finances is by growing the economy, which is our focus. We are committed to keeping taxes for working people as low as possible.”