The transfer of wealth from parents to their children is an age-old tradition across the world. However, few people appreciate how demographic and economic factors will shape their wealth in the coming years. Here are five interesting facts about inheritances across the United Kingdom:
1. The average inheritance is nearly the value of a house
According to data published in The Generation Game (Ollie Smith, New Model Adviser, 19 Jul, 2018), about 5.1 million people expect to receive more than £50,000 in inheritance, with the average value of their inheritance estimated at £233,000. That should come as no surprise to people who expect to inherit the family home, with the value of an average semi-detached house estimated at £227,912 (UK House Price Index for April 2018). The value of the family house is likely to contribute the bulk of the average inheritance for the foreseeable future.
2. Generational wealth is extremely persistent
A study tracking 634 rare surnames to detect patterns in wealth creation and retention across centuries discovered that most families remained relatively wealthy for multiple generations (Gregory Clark and Neil Cummins, the Economic Journal, 3 June 2014). There was a high correlation in the wealth of families across five generations, indicating that inheritances were a lot more persistent than previously expected. The study suggests that despite the higher wealth taxes and meritocratic social mobility policies implemented by successive governments over the past century, the rate of social mobility has changed little since the Victorian era.
3. Inheritances are more common now
The proportion of elderly households expected to leave an inheritance of £150,000 or more has jumped from 24% to 44% over the past 10 years. At the same time, 75% of people born in the 1970s have either received or expect to receive an inheritance, compared with less than 40% of those born in the 1930s (Andrew Hood and Robert Joyce, the Institute for Fiscal Studies, 5 Jan 2017). This makes generational wealth transfers more common than a few decades ago.
4. Most millenials won’t receive an inheritance till they’re pensioners.
According to a report by the Resolution Foundation (30 December 2017), people between the age of 25 and 35 can expect a larger inheritance than any other generation since the two World Wars. However, the average age for receiving this inheritance is 61, which means nearly half of all young people will experience this wealth transfer only after their own retirement.
5. The concept of an inheritance could be ending
Estimates from the Office for National Statistics suggest the number of people aged over 75 will double by 2040, reaching 10 million. With people living longer and the government already struggling to fund adult social care, many pensioners may have to spend their savings on taking care of themselves rather than leaving their kids wealthy. Experts suggest this could mean the end of the traditional inheritance in a few decades (Bronwen Maddox DECEMBER 22, 2017).