The value of inheritances is set to double over the next 20 years, but the number of recipients is smaller than the wealth management sector would think.
Think tank The Resolution Foundation surveyed over 8,700 UK adults and found just 32% have benefited or expecting to benefit from an inheritance or gift in their lifetime.
Wealthier and higher-income families are significantly more likely to be recipients, with the richest fifth of earners twice as likely to receive a significant transfer as the poorest fifth (50% compared with 25%).
Gifting for property
The report also found a third of gifts (33%) are given in order to help with a property purchase, while 6% of homeowners say that they would have been unable to purchase a property without the transfer, equivalent to 1.6 million households.
The linked phenomena of growing inheritances and home ownership challenges facing young people – just 12% of non-homeowners aged 25-to-34 have sufficient savings to afford a 10% deposit on the average first-time buyer home in their region – is likely to increase the role of family wealth transfers in determining many people’s lifetime living standards, and increase the pressure on older generations to pass on wealth, the report said.
The study also found that wealth transfers have an impact not just on recipients but also on the behaviour of givers, which is often neglected.
A substantial proportion of older cohorts who want to transfer wealth change their behaviour in order to do so, including 16% who save more, and 9% who have downsized their houses or expect to do so in the future.
And while young people could alter their life decisions in anticipation of receiving an inheritance or gift, the report finds that this is rarely the case. Only 7% of recipients experience a significant impact on their life in advance of receipt.
Central role for 21st century Britain
Jack Leslie, senior economist at the Resolution Foundation, said: “A boom in household wealth over recent decades has led to expectations of a huge inheritance windfall. But inheritances go to too few – and too late – to resolve Britain’s youth home ownership crisis, with just a third of people having received or expecting to receive an inheritance.
“These wealth transfers often have a significant impact on the lives of recipients, enabling 1.6 million households to own a property that they wouldn’t have been able to otherwise. But with the highest-income families twice as likely to be recipients as the lowest, the benefits are far from evenly distributed.
“With many givers also changing their behaviour in order to facilitate those transfers, the impacts of transferring wealth are far-reaching. A greater role for inheritances, and wealth in general, will be a central feature of 21st century Britain, shaping the lives of generations young and old.”
Sarah Pennells, consumer finance specialist at Royal London, added: “Figures from the Resolution Foundation show how important it is – whatever your age – to build your own plans to pay for your retirement rather than relying on an inheritance. The research highlights that the average age at which 20-35-year-olds are projected to receive an inheritance is 61.
“Of course, there are many factors that influence wealth being passed down but if an inheritance doesn’t materialise or it’s less than you expect, it leaves you little time to try and make up the difference with your retirement saving.
“Many parents and grandparents want to help their family financially, but passing on money through an inheritance is unpredictable in terms of timing if nothing else. Older people need to be mindful about not sacrificing their own standard of living in retirement for the next generation.
“It’s understandable that parents and grandparents may want to give their children or grandchildren a financial helping hand, but the possibility of funding future social care costs is an issue that looms large and may ultimately influence their decisions around when and how much to pass on.
“While many people find it uncomfortable talking about inheritance, parents and grandparents who are in position to help their children or grandchildren should talk to an impartial financial adviser about the best way to do this, so they don’t unintentionally generate a tax bill or leave themselves short of funds in later life.”