REPORT

WEALTH SERIES

December 2017 Laura Gardiner

THE MILLION DOLLAR BE-QUESTION

Inheritances, gifts, and their implications for
generational living standards
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Acknowledgements
The author is grateful to those who participated in a roundtable discussion of these
findings and their implications in November 2017. In particular, the author would like
to thank Andrew Hood of the Institute for Fiscal Studies for providing reflections on the
methodology and sharing results from his organisation’s previous research on this topic.
Any errors remain the author’s own.

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Contents
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Contents
Executive Summary�������������������������������������������������������������������������������������������������������������������������������� 4

Section 1: Introduction����������������������������������������������������������������������������������������������������������������������������8

Section 2: Inheritances and gifts to-date�������������������������������������������������������������������������������������� 15

Section 3: The future of intergenerational wealth transfers��������������������������������������������������28

Section 4: Conclusion���������������������������������������������������������������������������������������������������������������������������42

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Executive Summary
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Executive Summary
It is becoming increasingly evident that the 20th century promise of generation-on-gener-
ation living standards improvements is under threat today. In a range of areas, millennials
(born 1981-2000) are falling behind their predecessors at the same age. Nowhere is this
reversal of generational progress clearer than in relation to home ownership and wider
wealth accumulation. Millennials are currently half as likely to own their own home at age
30 as the baby boomers (born 1946-65) were, and all cohorts born after 1955 are accumu-
lating less wealth than their predecessors at the same age had. Wealth means houses,
pensions and financial assets to rely on over lifetimes and particularly in retirement. In
this light, the reversal of cohort-on-cohort wealth progress sits at the heart of
concerns about the generational living standards divide.

An obvious rejoinder to these concerns is that all the assets held by members of older
generations will not disappear at the end of their lives. Those that aren’t used for personal
consumption are generally passed down to descendants in the form of inheritances and
gifts. Indeed, there are a number of reasons to believe that future intergenera-
tional wealth transfers will provide a major boost to the living standards of
today’s younger generations.

The older population’s expectations for leaving bequests suggest that the total value
of inheritances is set to double over the next two decades – peaking in 2035 –
as the generally high-wealth baby boomers progress through old age. Millennials are
most likely to have baby boomers as parents, so they are the group that will increasingly
benefit from this coming inheritance boom.

In addition, fast-rising home ownership rates for the baby boomers and the silent
generation (born 1926-45) before them mean that, as well as bigger total inheritances
each year, a greater share of young people today are likely to benefit from inher-
itances than did in the past. With home-ownership rates now around 75 per cent
among the baby boomers, most millennials might expect to get a share of a parental
home eventually.

So inheritances and gifts clearly have a large and important role to play in boosting
the wealth of younger generations. But the extent to which wealth transfers down
generations within families will address home ownership gaps or affect wealth
inequality levels among young adults remain open questions. It is these questions
that this report – the 13th for the Intergenerational Commission – seeks to answer. As
well as synthesising and updating past research on inheritances and gifts to-date and
expectations for the future, we construct a dataset that directly links young adults and
their parents in order to assess potential future wealth transfers.

Inheritances and gifts to-date

Hand-in-hand with the growth of wealth in recent decades has come the growth of
inheritances – the real value of estates passing on death has more than doubled
over the past 20 years. While adults receive bequests from a range of different givers,
two-thirds of money inherited flows directly from parents to their children.

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The relationship of these inheritances to recipients’ income and wealth levels is

nuanced:

• We find that in relation to both income and wealth, the incidence and value of inher-
itances are higher for those with higher economic resources than lower resources.
For example, the highest-income fifth of 40-59 year olds inherited nearly
three times as much as the bottom 20 per cent did in the two years to 2012-14
– figures of £5,900 and £2,400 per adult in the population respectively. As such,
inheritances have to-date increased absolute differences in income and wealth.

• However, inheritances are more equally spread across the current income and
wealth distributions than income and wealth themselves. As a proportion of
current incomes, inheritances in the two years to 2012-14 were twice as
important for the lowest-income fifth of 40-59 year old as across the rest
of the distribution. And as a proportion of the lifetime income of 65-80 year olds,
lifetime inheritances were higher for those with the lowest lifetime incomes than
in the middle of the lifetime income distribution (the share at the top was highest).
So inheritances to-date have played a role in spreading wealth.

• These effects for the lowest-income, or least-wealthy, households have resulted

from a minority getting large sums in inheritances, rather than most low-resource
households benefiting from intergenerational wealth transfers in a big way: only 32
per cent of the one-fifth of 65-80 year olds with the lowest lifetime incomes
ever received an inheritance. So this wealth-spreading effect of inheritances
doesn’t reach the majority of those with low economic resources.

• The effects of inheritances on relative inequality levels are complex given these
factors, as well as any behavioural responses to expecting or getting an inheritance
that are hard to capture. Overall, it appears that inheritances have had a negligible
or mildly inequality-increasing effect on wealth and lifetime incomes.
Receipt of gifts – the other major form of intergenerational wealth transfer – happens
when adults are younger and appears more closely related to expensive life stages and
economic need. Due to both a higher likelihood of receiving one and higher average values,
gifts are largest for those with the highest incomes. However as a proportion of
income they are more than twice as large for the bottom 20 per cent as the top
20 per cent, the result of a minority of low-income households receiving proportionally
large gifts. Overall, gift giving shifts the timing of intergenerational wealth transfers
compared to inheritances, but doesn’t appear to substantially affect the distribution.

The future of intergenerational wealth transfers

Our dataset directly linking 20-35 year olds (roughly the oldest three-quarters of
the millennial generation) to their parents, even when they are no longer living with
them, allows us to compare incomes and property wealth levels. This means we can
estimate the impact that the future transfer of this property wealth might have on home
ownership rates and wealth inequality.

We find evidence supporting the conclusion that future intergenerational wealth

transfers will provide a major boost to many young adults’ living standards and wealth
accumulation. Past analysis of inheritance expectations has shown that as well as
rising overall, the incidence of inheritances may be somewhat more equal in
future than it has been to-date for older cohorts. Across all cohorts born between

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the 1930s and 1970s, expectations (or the actualities) of receiving an inheritance are
around 30 percentage points higher in the top fifth of incomes that at the bottom. But
coupled with higher expectations across income levels in each successive cohort, this
means that the relative difference between expectations for those with high and low
incomes is lower in younger cohorts. Strikingly, more than half of the bottom 20 per cent
of those born on the 1970s expect to receive (or have already received) an inheritance.

In line with these findings, our new analysis shows that more than half (55 per cent)
of the lowest-income 20 per cent of 20-35 year olds have at least one parent
with property wealth that they might expect to get a share of one day. This points to
a higher incidence of intergenerational wealth transfers for those with low resources
in future than in the past. And although absolute per-sibling parental property
wealth levels are 3.8 times as high for the highest-income fifth of 20-35 year
olds compared to the bottom 20 per cent, they are less unequal than incomes
themselves (which are 6.6 times as high at the top as at the bottom).

So there are a number of reasons for optimism regarding future intergenerational

wealth transfers to today’s young adults. However, these future wealth transfers are
no silver bullet for addressing young adults’ much lower home ownership rates
and slower wealth accumulation:

• Nearly half (46 per cent) of non-home owning 20-35 year olds have parents
who don’t own either, suggesting they may never receive the kind of transfer that
would support them to own themselves. By contrast, 83 per cent of millennial
home owners have a parent who also owns their own home.

• Even those who can expect to get a share of parental property wealth will get it far
later than is optimal. Because of the challenges of releasing wealth from properties
that are being lived in, it’s reasonable to expect that these assets will mainly be
passed down in inheritances rather than gifts. Based on their parents’ life expec-
tancies, we estimate that the most common age at which 20-35 year olds
inherit will be 61. This means that wealth boosts will come not at the expensive
child-rearing stage when a larger home is more necessary, but when they are
approaching retirement.

• While it’s possible they might reduce relative wealth differences by providing a
welcome boost to many who have built up little or no wealth, future intergener-
ational transfers look set to vastly increase absolute wealth gaps between
millennials. 20-35 year olds with property wealth of their own of £200,000
or more have average parental property wealth of £195,000 per sibling,
while millennials who don’t own their own home have average per-sibling
parental property wealth of just £85,000. The immediate transfer of all
parental property wealth to children would result in a near-doubling of the absolute
difference between the top fifth and bottom fifth of the 20-35 year old gross property
wealth distribution. Growing absolute wealth gaps will make it harder still for
individuals to earn their way towards being wealthy, as opposed to getting there on
the basis of what their parents had.

• Reforms currently underway mean that inheritance tax will do increasingly

little to reduce these absolute gaps in millennials’ property inheritances.

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The new housing allowance – which once it is fully implemented in 2020 will mean
that up to £500,000 per adult can be passed on tax free – could halve the average tax
burden on 20-35 year old parental property wealth, if inherited at current levels.

• ‘Assortative mating’ is likely to amplify these absolute gaps in individuals’

future wealth transfers at the household level. People tend to couple up with
those who have similar inheritance expectations to their own. Adults aged under
50 who are in couples and expect to get no inheritance themselves have partners
with an average expected future inheritance of £25,000. By contrast, those who
themselves expect to inherit more than £500,000 in future have partners with an
average expected future inheritance of £190,000.

Intergenerational wealth transfers as a solution to the

generational living standards divide?
The conclusions from the analysis in this report are clear. Patterns of intergenerational
wealth transfer to-date and expectations that they will be both larger overall and more
common for future cohorts suggest that inheritances and gifts will provide a major
boost to today’s young adults. However, future intergenerational wealth transfers are
by no means the solution to the low home ownership rates and wealth accumulation
challenges today’s younger generation faces. Many younger non-home owners look set
to get no property inheritance; those who do will likely receive it too late to support
them during the expensive family-raising years; and future property wealth transfers
are expected to vastly increase absolute wealth gaps.

On this basis, there is a need to assess how policy can support wealth accumu-
lation within younger generations and temper the role of intergenerational
family transfers in driving up absolute wealth gaps. Areas for consideration
include how the timing of wealth transfers can be brought forward (for example via
equity release and downsizing); the redistributive role of inheritance taxation; and the
broader ‘social inheritance’ – including infrastructure, national debt and the condition
of the environment – that today’s generations bequeath to tomorrow’s.

With the overall value of intergenerational wealth transfers set to grow rapidly over
coming decades, now is the right time to be thinking about these issues. As such,
forthcoming policy papers for the Intergenerational Commission will consider these
and other policy areas in forming recommendations for a renewal of the intergenera-
tional contract in Britain.

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Section 1
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Section 1

Introduction
Previous research for the Intergenerational Commission has detailed the challenges that
younger generations are facing in a range of areas, not least getting into home ownership
and building up wealth. But the overall growth in wealth in Britain in recent decades and
its concentration in older cohorts provide reasons to believe that future intergenera-
tional transfers of wealth – in the form of gifts and inheritances – will greatly improve
millennials’ housing and wealth prospects. The total value of bequests is expect to double
over the next 20 years as the baby boomers reach the end of lives, and high levels of home
ownership within this older generation suggest that inheriting some of this wealth will be
a more common phenomenon than in the past.

Despite these reasons for optimism, the extent to which future intergenerational transfers
will address the home ownership gap or reduce levels of wealth inequality for younger
generations remain open question. With answering these questions the main tasks of this
report, in this introductory section we briefly recount Britain’s recent wealth story and
the implications for future wealth transfers.

Britain has a big generational living standards challenge,

with home ownership and wider wealth accumulation
among the starkest divides
Previous analysis for the Intergenerational Commission has shown that the common-
ly-accepted promise that each generation should have a higher standard of living than
predecessors is under threat in a range of areas. Millennials (the generation born
1981-2000) have earnings that are no higher than those born 10 or 15 years before
them had at the same age.1 Starker still is the home ownership picture: millennials
are currently half as likely to own their own home at age 30 as the baby boomers (born
1946-65) were.2 And our analysis of trend in wealth – of which these houses form a
major part alongside private pensions and financial assets – shows that older cohorts
have done better than younger ones, as set out in Figure 1.

1 L Gardiner & P Gregg, Study, work, progress, repeat? How and why pay and progression outcomes have
differed across cohorts, Resolution Foundation, February 2017
2 A Corlett & L Judge, Home affront: Housing across the generations, Resolution Foundation, September 2017

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Figure 1:  Median family total net wealth and net property and financial wealth per adult, by cohort: 2006-08–2012-14, GB
CPIH-adjusted to 2017 prices
£300k
1921-25 1926-30
1931-35 1936-40 Net total wealth (including
private pensions)
1941-45 1946-50
£250k
1951-55 1956-60
1961-65 1966-70
1971-75 1976-80
£200k
1981-85 1986-90

£150k

Net property and

£100k
financial wealth

£50k

£0
20 25 30 35 40 45 50 55 60 65 70 75 80 85 90
Age

Notes: Total net wealth includes net property wealth, net financial wealth and private pension wealth.

Source: RF analysis of ONS, Wealth and Assets Survey

Turning first to net total wealth3 – the solid lines in Figure 1 – as well as expected
life-cycle effects (with wealth accumulated during working age and the run down in
retirement) we see a pattern of older cohorts holding more wealth than their prede-
cessors did when they were the same age. For example, the 1946-50 cohort had one-fifth
(21 per cent) more wealth at age 65 than the 1941-45 cohort did. But for all cohorts born
after 1955 the opposite is true, with wealth levels lower than what predecessors had
when they were the same age. For example, those born 1981-85 had half (48 per cent) of
what the 1976-80 cohort had at age 30.

As well as total net wealth which includes private pensions, the dashed lines in Figure 1
show generational trends in the accumulation and decumulation of what is often termed
‘marketable’ wealth – net property and net financial assets. We focus on this because
it is these elements that can most easily be transferred to others during lifetimes or at
death: private pension wealth is restricted in the saving phase, and its transfer during
retirement or at death (to those other than partners) is also constrained, although

3 We exclude physical wealth from our generational analysis, because of concerns about how these assets are
valued in the survey: respondents are asked about the replacement value of their physical assets, which is
generally much higher than its marketable value. For more information, see: R Crawford, D Innes & C O’Dea,
The Evolution of Wealth in Great Britain: 2006-08 to 2010-12, Institute for Fiscal Studies, November 2015

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increasingly less so.4 Excluding pension wealth makes clear the role that pensions have
played in wealth accumulation patterns for older cohorts. When looking just at net
property and financial wealth, cohort-on-cohort wealth progress has gone into reverse
for all cohorts born after 1945 (however the relative gaps remain much greater for
younger cohorts).

A fundamental conclusion from Britain’s housing and broader wealth stories in the 21st
century is therefore that the established pattern of cohort-on-cohort progress has been
reversed, with members of the millennial generation pegged back furthest. Wealth is
essential to supporting lifetime living standards and particularly those in retirement,
so this outcome sits at the heart of the growing perception that Britain’s intergenera-
tional contract is under threat.

The coming baby bust suggests that accumulated wealth

will boost millennial living standards in coming decades
Of course, we shouldn’t see older cohorts who have done comparatively well in terms
of building up wealth as existing on one side of a generational divide. People live their
lives as families across generations, and the transfer of this wealth as members of older
cohorts age – particularly in bequests when they die – provides potential reasons for
optimism regarding younger cohorts’ housing and wealth prospects.

The first reason for thinking that intergenerational family transfers will play an
important role for younger generations is that there is just a lot more wealth around
to be handed down. The evolving pattern of household wealth since 1955 is shown in
Figure 2.

4 The move towards greater pension freedoms and changes to how pensions are taxed at death increase the
scope for transferring pension wealth to others. And of course, income from pension pots can be gifted or
saved in other asset classes for the purpose of future gifts or bequests.

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Figure 2:  Aggregate household wealth as a proportion of GDP: 1955-2016, GB/UK

700% chart info (esp y axis)
Technical

Total net wealth

(WAS)
600%

500% Total net worth

(National Accounts)

400%

300%

Total net wealth

(Blake & Orszag)
200%

100%
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Notes: Wealth measures cover net property wealth, net financial wealth, private pension wealth and physical wealth. Blake & Orszag and National Accounts measures, and GDP data, cover
the UK; the WAS measure covers Great Britain.

Source: D Blake & J Orszag, ‘Annual estimates of personal wealth holdings in the United Kingdom since 1948’, Applied Financial Economics 9, 1999; ONS, UK National Accounts; ONS,
Wealth and Assets Survey

We find that between 1955 and 1980, total net wealth consistently averaged around 2.6
times total GDP, before climbing through the 1980s to reach 3.2 times GDP by 1990.
Switching to different datasets after this point produces slightly different estimates of
the total value of wealth, but there is a consistent picture after 1995 of wealth rising as a
share of GDP. The Wealth and Assets Survey (WAS) – the most complete and up-to-date
source – valued aggregate wealth at 5.5 times GDP by 2006-08, a figure that had risen to
6.4 times GDP by 2012-14.

Second, and related to this first point, substantial amounts of this accumulated
wealth are not consumed during people’s lifetimes. This is highlighted by the lack of
any apparent decrease in net property and financial wealth across older age cohorts in
Figure 1 – the median net family property and financial wealth per adult of 90 year olds
is very similar to that of 60 year olds in the latest data.

As our previous study of wealth demonstrated, these patterns partly reflect compo-
sitional effects (wealthier adults tend to live longer); the death of partners boosting
per-adult measures of wealth; and the ‘passive’ effect of house price growth.5 But even
excluding these effects we found that far less is actively decumulated than if wealth’s

5 C D’Arcy & L Gardiner, The generation of wealth: Asset accumulation across and within cohorts, Resolution
Foundation, June 2017

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only purpose was to support lifetime living standards, and another study has similarly
found sub-optimally high levels of asset accumulation by the 1940s cohort from a
lifetime consumption perspective.6 As well as structural and practical challenges to
releasing value from main residences – the biggest single wealth component for most
people – the suggestion is that bequest motives may be driving these limited decumu-
lation behaviours.

The third reason for optimism regarding younger cohorts’ wealth prospects is that these
bequest motives are reflected in older adults’ expectations of leaving inheritances in
future. Based on the latest mortality projections, in Figure 3 we apportion the bequest
expectations of adults in England aged 50 and over to the year in which they and their
partner (if they have one) are expected to both be deceased.

Figure 3:  Index of total expected future bequests of adults aged over 50, by estimated year of bequest: 2014-15, England
Current prices, 2018=100
250

200

150

100

50
2015 2020 2025 2030 2035 2040 2045 2050
Notes: To project the value of future bequests, we estimate a distribution of bequests based on adults’ responses to questions asking them to estimate the likelihood of they (and their
partner, if applicable) leaving a combined bequest within certain banded ranges. In coupled families, we take the average of each individual’s estimate. To estimate the timing future bequests,
we apply the distribution of 2016-based cohort mortality rates (estimated separately for each age and sex). For coupled families, the bequest falls in the year in which the second adult is
expected to die (in other words, we exclude bequests to spouses and partners). We do not deflate expected bequests, meaning we assume that responses are based on the cash value of the
bequest at the time of bequeathing, rather than in contemporaneous prices. This chart should not be interpreted as a projection of the value of all estates passing at death. This is principally
because in years to come a growing share of total bequests will come from those current aged under 50, who are not captured in this dataset – their inclusion would be likely to increase the
level of total future bequests towards the end of our projection period.

Source: RF analysis using UCL et al., English Longitudinal Study of Ageing; ONS, Life Tables

6 R Crawford & C O’Dea, Retirement sorted? The adequacy and optimality of wealth among the near-retired,
Institute for Fiscal Studies, September 2014

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We find that the total value of bequests is expected to more than double over the next
two decades, peaking in 2035. This is partly driven by demographics: in 2035 surviving
members of the 1947 cohort that marked the early baby boomer birth peak will be 88.
But it also reflects the fact that the younger 50-plus cohorts have higher average bequest
expectations than older ones,7 unsurprising given the baby boomers (now aged 53-72)
currently own more than half (54 per cent) of Britain’s wealth. Millennials are most
likely to have baby boomers as parents – 69 per cent of millennials’ parents are baby
boomers, with most of the rest in generation X (born 1966-80) – so they are the group
that will increasingly benefit from this coming inheritance boom.

The final reason why we might be optimistic about the role that future intergenera-
tional wealth transfers can play for millennials is that there are good reasons to think
that inheriting will be a common phenomenon in future, more so than it has been in
the past. Most obviously, the big increases in home ownership for the silent generation
(born 1926-45) and the baby boomers suggest that a greater share of older generations
will have something to pass on to their descendants. With home-ownership rates now
around 75 per cent among the baby boomers,8 most millennials might be expecting to
get a share of a parental home eventually.

So a number of factors provide reasons to be positive about the future path of intergen-
erational family transfers of wealth:

• The sheer size of wealth;

• The limited extent to which older cohorts run it down in later life;

• The expectation that bequests will rise rapidly in coming decades; and,

• The prospect that these will be widely spread given high home ownership rates in
older generations.
The key question, however, is whether these transfers will be a sufficient solution to the
home ownership challenges that younger generations are facing. Relatedly, for those
concerned about intra-cohort or wider social inequalities, a key consideration is the
effect that intergenerational wealth transfers will have on the distribution of incomes
and wealth within younger cohorts. This concern represents the fundamental link
between the growing focus on intergenerational differences in resource allocation – of
which the Commission this report is for forms a major part – and the longer-standing
focus on poverty and inequality writ large in Britain.

The scope of this report

To address these questions, this report considers the recent and future incidence and
distribution of intergenerational family transfers. It does so partly by synthesising and
updating past analysis of outcomes to-date, and of future expectations for bequests
at death. In addition, we advance this literature with new analysis of a dataset that
directly links millennials and their parents (even when they are not living with them
– the limitation of most household survey data), to assess how the younger generation’s
current income and property wealth relates to that of their parents, and when they
might expect to inherit.

7 A Ross, J Lloyd & M Weinhardt, The Age of Inheritance, National Centre for Social Research, May 2008
8 A Corlett & L Judge, Home affront: Housing across the generations, Resolution Foundation, September 2017

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The remainder of this report is set out over three sections, as follows:

• Section 2 explores inheritances and intergenerational gift-giving to-date,

bringing together the findings of past analysis of this topic and updating these using
the latest data.

• Section 3 considers the possible future distribution of intergenerational

family transfers within younger generations, based on their expectations, and
a direct assessment of their parents’ current property wealth.

• Section 4 provides concluding remarks, including reflecting on the implications

of this analysis for policy.

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Section 2
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Section 2

Inheritances and gifts to-date

In this section we summarise current patterns of intergenerational family transfers
and how these have evolved over time. Hand-in-hand with the growth of wealth in recent
decades has come the growth of inheritances – the real value of estates passing on death
has more than doubled over the past 20 years. While adults receive bequests from a range
of different givers, two-thirds of money inherited flows directly from parents to their
children. This money is unequally shared in relation to the current living standards
of recipients. However, as a share of incomes inheritances are greatest for those with
the lowest incomes, driven by a small minority of low-income households receiving
substantial amounts. When inheritances are expressed as a share of lifetime incomes, the
lowest lifetime income groups benefit more than those in the middle of the distribution,
though still less than those with the highest lifetime economic resources.

Receipt of gifts – the other major form of intergenerational family transfer – happens
when adults are younger and appears more closely related to expensive life stages and
economic need. However gifts broadly maintain the unequal distribution of inheritance
receipts in relation to current household incomes. Overall, the pattern is one of clear
associations between the absolute levels of intergenerational family transfers to-date,
and the resources of those who benefit from them.

Inheritances have played a growing role in British society

over recent decades
Given the wealth trends described in the previous section, it is unsurprising that inher-
itances have grown in recent years, in relation to both prices and the size of the economy.
Real-terms trends in the value of estates passing on death, and the average amount that
each adult in Britain inherits each year, are shown in Figure 4.

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Section 2
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Figure 4:  Total real value of estates passing on death and average amount inherited, UK/GB
CPIH-adjusted to estates
Total value of 2017 prices
passing on death Average annual inheritance per adult in population
£90bn £1,100
Estates passing on death
(HMRC administrative data,
£80bn left axis) £1,000

£70bn £900
Amount inherited per adult
(BHPS survey data,
£60bn £800
right axis)

£50bn £700

£40bn £600

£30bn £500

£20bn £400
1995-96 1997-98 1999-00 2001-02 2003-04 2005-06 2007-08 2009-10 2011-12 2013-14

Notes: HMRC data covers UK, BHPS data covers Great Britain. Only around half of all estates (excluding those going to a surviving spouse) are covered by the HMRC data, however those
excluded are small estates consisting only of cash and personal effects of less than £5,000 held in particular forms. This data therefore covers the vast majority of the value of pre-tax inher-
itances. The implied total values from the HMRC and BHPS data differ partly because the BHPS data will exclude any tax levied on estates, and partly because household survey data is known
to under-record financial information such as this.

Source: RF analysis of HMRC, Inheritance tax statistics; Institute for Social and Economic Research (ISER), British Household Panel Survey

We turn first to the HMRC data (the purple line), which comes from administrative
records. These records cover only around half of all the estates that pass on death each
year in the UK but, given those excluded are very small, capture the vast majority of the
total value of inheritable wealth. The real value of estates more than doubled in the 19
years between 1995-96 and 2014-15 – from £38 billion to £87 billion.

This increase is clearly large, but recent analysis by the late Tony Atkinson has shown
that it is roughly in line with the big wealth increase in this period. And before we make
bold statements about the ‘age of inheritance’, this same analysis reminds us that current
inheritance levels are small when compared to those of a century ago. For example,
estates passing on death totalled around 6 per cent of national income just before the
financial crisis, compared to around 16 per cent at the turn of the 20th century.9 While
this historical perspective reminds us that we live in a different world to the Victorians
in terms of the importance of family background in determining our living standards,
the fact remains that the increase in inheritable wealth over the past two decades has
been sizeable.

9 A Atkinson, Wealth and Inheritance in Britain from 1896 to the Present, Centre for Analysis of Social Exclu-
sion, London School of Economics, November 2013

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The second (pink) line in Figure 4 shows changes in the average amount each adult in
Britain inherits each year, as measured in the British Household Panel Survey (BHPS).
The implied total value of inheritances is lower than in the administrative HMRC
data partly because the survey data will exclude any tax levied on estates, and partly
because household surveys are likely to under-record inheritance values somewhat.
Nonetheless, the upward trend over this shorter time-period is clear, with the average
nearly doubling between 1997-98 and 2008-09, from £470 to £910.

Over this period, the proportion of adults inheriting each year in BHPS remained fairly
flat at around 2.5 per cent, with the increase therefore driven by the rising real value
of inheritances (from an average of £20,000 in 1997-98 to £43,000 in 2008-09, both in
2017 prices). More recent data from WAS captures the proportion of adults inheriting
within the past two years, and gives broadly comparable10 figures of 3.6 per cent of adults
having inherited in the two years to 2008-10,11 rising slightly to 3.9 per cent in the latest
data covering 2012-14.

Taking a generational perspective and capturing inheritances over lifetimes rather than
in the recent past, there is evidence of a rise in the incidence of inheritances as well as
in their value. For example, research by the Institute for Fiscal Studies (IFS) has shown
that 55 per cent of the 1940s cohort in England had received an inheritance during their
lifetime in 2012-13, compared to 38 per cent of the 1930s cohort.12 In sum, inheriting
appears to be becoming both a more common pursuit and a more lucrative one.

Most money inherited comes from parents, although

other givers are common
While the focus of the analysis in the following section is on potential future inter-
generational transfers from parents to children, it is important to highlight that
actual patterns of inheritance are more diverse than this. The relationship of givers to
recipients is shown in Figure 5, which relates to all those inheritances occurring in the
two years to 2012-14.

10 We might not expect the proportion of adults inheriting in the past two years to be double the proportion
who have inherited in the past year, as some may inherit in both.
11 Office for National Statistics, Inheritance in Great Britain, 2008/10, October 2013
12 This analysis in fact captures expected future inheritances as well as their past incidence. But given these
cohorts were entirely over age 60 in 2012-13, it is likely that most of the inheritances they might expect to
receive will have already happened. See: A Hood & R Joyce, Inheritances and Inequality across and within
Generations, Institute for Fiscal Studies, January 2017

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Figure 5:  Proportion of inheritances and proportion of money inherited, by giver: 2012-14, GB
Technical chart info (esp y axis)
4%

14%
Parents 5%
8%

Grandparents or 4%
great grandparents

Uncles / aunts or 8% Outer ring:

great uncles / aunts 12% Inner ring: 45%
Proportion of Proportion of
Spouse or partner inheritances money
inherited

Other relatives 6%

67%
Non-relatives 26%

Notes: Data captures up to three inheritances (of at least £1,000) received in the previous two years by each adult aged 16 and over.

Source: RF analysis of ONS, Wealth and Assets Survey

The inner ring shows the proportion of inheritances coming from each category of giver.
Just under half (45 per cent) of inheritances came from parents in this recent period, and
more than four-fifths (83 per cent) came from older generations of the recipient’s family.
Previous analysis has shown that while this overall share of inheritances coming from
older family members is quite consistent across age groups, inheriting from a grandparent
is more likely when aged under 40, and from a parent in one’s 40s and 50s.13

In terms of other givers, the very low share of inheritances coming from spouses is
perhaps surprising given that even jointly-held property is technically inherited by
an individual (unless of course it is given to someone else) when his or her partner
dies. Given that such transfers are not subject to inheritance tax and may have been
considered part of the individual’s property in the first place, it is our judgement that
they are likely to be significantly under-captured in household surveys.14

The outer ring in Figure 5 shows the proportion of money inherited from each category
of giver. The key difference here is a much greater role of inheritances from parents,

13 A Hood & R Joyce, The Economic Circumstances of Cohorts Born between the 1940s and the 1970s, Insti-
tute for Fiscal Studies, December 2013
14 For the same reason, we assume that people don’t consider future inheritances from a spouse or partner
when they respond to questions about future inheritance expectations that are discussed in the following
section of this report.

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which made up two-thirds of the total sum inherited in the two years to 2012-14. Inher-
itances from spouses – while we assume them to be significantly under-captured – are
also much larger on a value basis than on an incidence basis.

So inheritances received from relatives other than parents, and non-relatives, represent
either much smaller total estates, or small parts of estates that are divided up, with the
dominant recipient(s) being children (or spouses). Although it is now decades out of date,
a survey conducted for the Royal Commission on the Distribution of Income and Wealth
(the Diamond Commission) supports the latter of these two explanations. In the early
1970s, the majority of medium and larger estates were made up of multiple bequests of
small sums and one or two major bequests.15

In sum then, this analysis suggests that the combination of parental resources and
coupling decisions have driven recent inheritances, which provides a basis for our
assumptions about what will determine future wealth transfers, the topic of Section 3.

Inheritances are unequally shared in relation to adults’

resources
The key question addressed by the forward-looking analysis in the following section
of this report is the extent to which future intergenerational wealth transfers will
ameliorate living standards challenges and wealth gaps in younger generations. As
background, here we consider the relationship between inheritances and both incomes
and wealth levels to-date.

Considering first differences across the spectrum of current incomes, Figure 6 shows
the likelihood of having received an inheritance in the past two years by household
income quintile.

15 Royal Commission on the Distribution of Income and Wealth, Report No. 5: Third report on the standing
reference, 1977

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Figure 6:  Proportion of adults receiving an inheritance over the past two years, by age and net household income
quintile: 2012-14, GB
7%
Technical chart info (esp y axis)

6%

5%
Aged 40-59

4%

All ages
3%

2%

1%

0%
1 (lowest income) 2 3 4 5 (highest income)

Notes: Data captures inheritances of £1,000 or more. Household incomes are equivalised, with quintiles calculated separately within different age groups.

Source: RF analysis of ONS, Wealth and Assets Survey

Focusing on adults of all ages (the purple line) we find a clear pattern of the incidence of
inheritances rising with income – 2.7 per cent of adults in Britain in the bottom 20 per
cent of the income distribution had inherited in the two years to 2012-14, compared to
4.6 per cent of those in the top 20 per cent.

Of course, this could partly be because (as we will see in the analysis that follows)
inheritance is most common in later working age, which is when household incomes
tend to be highest. However, the pink line in Figure 6 shows very similar patterns when
focusing on those of peak inheritance age only.

These findings in relation to income echo those of past analysis exploring the incidence
of inheritances for different socio-economic groups. In the late 1990s and early 2000s,
inheriting was more than twice as common for those in professional and managerial
occupations as it was for those in semi- and un-skilled occupations.16 More recently,
researchers have found suggestive evidence that the associations between the incidence
and value of inheritances and socio-economic status may have strengthened over time.17

16 A Ross, J Lloyd & M Weinhardt, The Age of Inheritance, National Centre for Social Research, May 2008
17 E Karagiannaki, ‘Recent trends in the size and the distribution of inherited wealth in the UK’, Fiscal Studies
36:2, 2015

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Having described their incidence, we turn next to the value of inheritances. Figure 7 sets
out the average value of inheritances within the peak inheritance age group in 2012-14.

Figure 7:  Average inheritance received over the past two years and per-year inheritance as a proportion of annual
income for 40-59 year olds, by net household income quintile: 2012-14, GB

Technical chart info (esp y axis)

Adults receiving inheritances only All adults
£100k £6k 9%
Mean inheritance
(left axis)
£5k
£80k Per-year inheritance
as a % of annual
£4k income (right axis) 6%
£60k

£3k

£40k
£2k 3%

£20k
£1k

£0 £0 0%
1 (lowest 2 3 4 5 (highest 1 (lowest 2 3 4 5 (highest
income) income) income) income)

Notes: Data captures up to three inheritances (of at least £1,000) received in the previous two years by each adult aged 16 and over. Household incomes are equivalised, with quintiles calcu-
lated within the population of 40-59 year old adults.

Source: RF analysis of ONS, Wealth and Assets Survey

Focusing first on the left-hand panel, we find that the average value of inheritances
among recipients displays something of a U-shaped pattern in relation to current
incomes. Recipients in the highest-income fifth of British adults in their 40s and 50s
got the most, but those in the bottom 20 per cent received a larger amount than those in
the middle three quintiles. One driver of this pattern might be that some givers direct
bequests in particular towards those members of their families (or wider circle) who
they perceive as having the greatest economic need for them. Indeed, previous analysis
has suggested that this is the approach taken by some families when dividing estates.18

The right-hand panel in Figure 7 combines the value of inheritances for 40-59 year old
recipients across the income scale with their differential incidence shown in Figure 6.
The greater likelihood of inheriting for those with higher incomes and the greater value

18 E Karagiannaki, ‘Recent trends in the size and the distribution of inherited wealth in the UK’, Fiscal Studies
36:2, 2015

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of inheritances when they do mean that the top 20 per cent of 40-59 year olds inherited
nearly three times as much as the bottom 20 per cent did in the two years to 2012-14 –
averages of £5,900 and £2,400 per adult respectively.

While large, it should be noted that this difference is smaller than income differences
across the distribution. The purple diamonds in the right-hand panel in Figure 7 show
recent inheritances as a share of current incomes, highlighting that for the bottom
20 per cent, inheritances are around double the size in relation to income as they are
across the rest of the distribution. Given lower inheritance incidence for those on low
incomes, this is the result of a small minority of low-income households receiving very
large amounts of money, rather than lots of households on low-incomes getting such
a boost. The average inheritance was nearly six times the average annual income for
inheritance recipients in the bottom 20 per cent of incomes, whereas in the top 20 per
cent the two values were similar. Nonetheless, the conclusion that inheritances are less
unequal across the income distribution than household income levels at the time they
are received is an important one, highlighting the role they play in distributing wealth
to some households across the living standards spectrum.

Of course, some of the high relative value of inheritances for those with the lowest incomes
could be because even lifetime well-off families have periods when income is low. This is
an issue that past analysis has grappled with in the context of debates about the impact of
inheritances on wealth inequality. We summarise the evidence in this area below.

The incidence and value of inheritances by non-inherited-wealth levels, and therefore

their impact on wealth inequality, were comprehensively reviewed by Karagiannaki
and Hills. Focusing on ‘marketable’ wealth (net housing and net financial wealth), these
authors showed that inheritances in the period between 1995 and 2005 were positively
correlated with pre-inherited wealth, meaning that they increased absolute wealth
differences. Relative differences – that is, wealth inequality – narrowed though. That’s
because inheritances, while unequal, were less unequally distributed than wealth
as a whole, and because some inheritors had very low pre-inherited wealth. However
the authors cautioned that the small magnitude of these effects and uncertainty
about behavioural responses mean inheritances can probably best be thought of as
maintaining wealth inequalities rather than either narrowing or widening them.19

Furthermore, analysis by the IFS has shown that this finding is very sensitive to the
definition of wealth used: including pension wealth (both state and private) means the
impact of inheritances on wealth inequality is near zero. More broadly, this analysis
suggests a shift of focus from wealth levels per se to income or consumption over
lifetimes – the provision for which is, theoretically at least, the fundamental purpose
of wealth accumulation.20 On this lifetime living standards basis, the authors conclude
that the impact of inheritances is likely to be either negligible or inequality-increasing,
not inequality-reducing.21

This assessment of the relationship between past inheritances and the lifetime living
standards of older adults is fundamental to our consideration of how intergenerational
transfers will play out for younger generations. As such, we reproduce a version of these

19 E Karagiannaki & J Hills, ‘Inheritance, Transfers, and the Distribution of Wealth, in J Hills et al., Wealth in the
UK: Distribution, Accumulation, and Policy, Oxford University Press, 2013
20 The reason that wealth levels do not provide a reliable guide to lifetime economic resources is primarily
because the rich save more.
21 R Crawford & A Hood, A tale of three distributions: Inheritances, wealth and lifetime income, Institute for
Fiscal Studies, April 2015

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IFS findings from one of their more recent reports in Figure 8. This analysis exploits a
link between the English Longitudinal Study of Ageing, which collects information on
the value of inheritances received over lifetimes for adults aged over 50, and National
Insurance records that can be used to estimate lifetime earnings patterns. Lifetime
income is the discounted real value of lifetime after-tax earnings (and assumed
Jobseeker’s Allowance (JSA) receipt in non-earning periods) and private and state
pension income over retirement.

Figure 8:  Lifetime inheritance of 65-80 year olds, by lifetime income quintile: 2012-13, England
Technical
Average chart info (esp
lifetime y axis) (2014-15 prices)
inheritance Lifetime inheritance as a proportion of lifetime income
£120k 5.0%

4.5%
£100k
Lifetime inheritance as a 4.0%
proportion of lifetime income
(right axis) 3.5%
£80k
3.0%

£60k 2.5%

2.0%
£40k
Average lifetime inheritance 1.5%
(left axis)
1.0%
£20k
0.5%

£0 0.0%
1 (lowest income) 2 3 4 5 (highest income)

Notes: Lifetime totals are calculated using a 3 per cent real discount rate, with inflation measured using a variant of the CPI that includes mortgage interest payments. Income quintile groups
are derived by dividing individuals into five equally-sized groups based on ‘lifetime income’ per person. ‘Lifetime income’ is the sum of household earnings, household state pension income
and household private pension income. It does not include unearned income or working-age benefits (other than assumed JSA receipt).

Source: IFS analysis using UCL et al., English Longitudinal Study of Ageing, and linked administrative data. See: A Hood & R Joyce, Inheritances and Inequality across and within Generations,
Institute for Fiscal Studies, January 2017

Focusing first on average lifetime inheritance (the pink line), we see a clear pattern of
increasing lifetime inheritances through the top half of the lifetime income distribution
of 65-80 year olds in England in 2012-13. This is driven by both a higher incidence of
inheritances and higher inheritance values. This reinforces the finding we have already
discussed in relation to wealth levels: that inheritances increase absolute inequalities in
lifetime economic resources.

However the red line in Figure 8 shows that the relative impact is more complex: inher-
itances boost lifetime incomes (proportionally) most for the highest-lifetime-income

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fifth of 65-80 year olds, but for the bottom 20 per cent by nearly as much. This is driven
by the much lower lifetime incomes in this group, an effect that would be lessened if
receipt of benefits other than JSA, and tax credits, were included. This nonetheless
underscores the important role that inheritances have played in boosting the living
standards of some ‘lifetime low income’ older adults today. Again though, given
lower inheritance incidence it’s important to remember that this doesn’t represent
a widespread experience, but rather a minority of lifetime-low-income households
getting a large living standards boost from inheritances. 32 per cent of 65-80 year olds
in the bottom 20 per cent of lifetime incomes received an inheritance, compared to 64
per cent at the top.22

In sum, the relationship observed to-date between inheritances and income and wealth
levels is nuanced. The following conclusions stand out:

• Whether measured in relation to current income, lifetime income or wealth, both

the incidence and value of inheritances are higher for those with higher economic
resources than lower resources. As such, inheritances have to-date increased
absolute differences in income and wealth.

• However, that is not to say that inheritances have played no role in spreading wealth.
Inheritances are more equally distributed across the current income and wealth
distributions than income and wealth themselves. And inheritances as a share of
income (whether measured at the time people inherit or over lifetimes) are higher
for those with the lowest incomes than in the middle of the distribution.

• These effects for the lowest-income, or least-wealthy, households have resulted

from a minority getting large sums in inheritances, rather than lots of low-resource
households benefiting from intergenerational wealth transfers in a big way. So
this wealth-spreading effect of inheritances doesn’t reach most of those with low
economic resources.

• The effects of inheritances on relative inequality levels are complex given these
factors, as well as any behavioural responses to expecting or getting an inheritance
that the evidence presented here doesn’t capture. Overall, a reasonable conclusion
is that inheritances have had a negligible or mildly inequality-increasing effect on
wealth and lifetime incomes.

Lifetime gifts provide support when younger, but are

also unequally distributed
So far in this section we have discussed the growth of inheritances in recent decades
and their unequal allocation in relation to other markers of economic advantage. But
inheritances are only one way in which families transfer economic resources down
generations: ‘inter-vivo transfers’ – or gifts – are the other. Our ability to analyse these
is more limited, but here we briefly recount recent patterns.

Past analysis has shown that the likelihood of receiving a gift over a two-year period
was stable through the late 1990s and early 2000s, at around 1.5 per cent of adults. The
value of these gifts was also stable.23 More recent data from WAS (which records a much

22 A Hood & R Joyce, Inheritances and Inequality across and within Generations, Institute for Fiscal Studies,
January 2017
23 A Ross, J Lloyd & M Weinhardt, The Age of Inheritance, National Centre for Social Research, May 2008

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higher incidence of gift receipt in general24) suggests that, if anything, gift receipt has
fallen slightly in recent years – from 5.1 per cent of adults receiving gifts totalling £500
or more in the two years to 2008-10, to 4.2 per cent in 2012-14.

In order to compare the incidence of gifts with that of inheritances, Figure 9 shows the
proportion of adults of different ages receiving each in the two years to 2012-14.

Figure 9:  Proportion of adults receiving inheritances and gifts over the past two years, by age band: 2012-14, GB
Technical
8% chart info (esp y axis)

Inheritances
7% 7.4%

6.7% Gifts
6%

5%
5.1% 5.1%

4%
4.1% 4.0%
3.7%
3% 3.4%
3.1%
2.9%

2%
1.9%
1% 1.2%

0%
16-19 20-29 30-39 40-49 50-59 60+
Notes: Data captures inheritances of £1,000 or more and gifts of £500 or more.

Source: RF analysis of ONS, Wealth and Assets Survey

The age distributions of these two forms of wealth transfer are very different. Inher-
itances become more common as adults progress through working age, with their
incidence peaking when people are in their 50s. Gifts, by contrast, are most common
when adults are in their 20s and 30s, the ages at which many people go through expensive
life stages like becoming home owners and having children. In this respect, intergen-
erational gift-giving may be a means of providing support and resources to those who
need them at the time they need them.25 Indeed, previous research using the BHPS has

24 This is likely to be due to more detailed questions on this topic than in the British Household Panel Survey,
on which previous analysis was based.
25 E Karagiannaki & J Hills, ‘Inheritance, Transfers, and the Distribution of Wealth, in J Hills et al., Wealth in the
UK: Distribution, Accumulation, and Policy, Oxford University Press, 2013

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found some evidence that it is lower-income households that are most likely to receive
gifts, and especially ongoing support.26 However, perhaps unsurprisingly, the value of
gifts is higher for recipients in higher socio-economic groups. 27

Our more up-to-date analysis using WAS broadly complements these findings. Figure
10 shows the average value of gifts received in the two years to 2012-14 per adult in the
population, and the size of these in relation to household incomes.

Figure 10:  Average gifts received over the past two years and per-year gifts as a proportion of annual income, by net
household income quintile: 2012-14, GB

Technical
Average chart infoof(esp
value y axis)
gifts per adult Per-year gifts as a proportion of annual income
£800 1.0%
Per-year gifts as a % of annual
income (right axis)
£700 0.9%

£600 0.8%

£500 0.7%

£400 0.6%

£300 0.5%

Gifts (left axis)

£200 0.4%

£100 0.3%

£0 0.2%
1 (lowest income) 2 3 4 5 (highest income)

Notes: Population is all adults, including those who did not receive an inheritance or gift over the past two years. Data captures up to three inheritances (of at least £1,000), and cash or in-kind
gifts of £500 or more, received in the previous two years by each adult aged 16 and over. Household incomes are equivalised.

Source: RF analysis of ONS, Wealth and Assets Survey

It suggests that, as was the case in relation to inheritances, the value of gifts rises as
household incomes rise. This finding is driven both by a slightly higher likelihood of
receiving a gift in the top income quintiles and gifts having a higher average value in
these quintiles, and this effect endures when we focus only on adults of certain ages.
However, the yellow line in Figure 10 shows that because gifts are less unequally

26 E Karagiannaki & J Hills, ‘Inheritance, Transfers, and the Distribution of Wealth, in J Hills et al., Wealth in the
UK: Distribution, Accumulation, and Policy, Oxford University Press, 2013; R Shorthouse, Family fortunes: The
bank of mum and dad in low income families, Social Market Foundation, October 2013
27 A Ross, J Lloyd & M Weinhardt, The Age of Inheritance, National Centre for Social Research, May 2008

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distributed across the income distribution than income itself is, gifts are greatest as a
share of income for the bottom 20 per cent. This finding is similar to our conclusion in
relation to inheritances. In particular, it’s worth emphasising again that this outcome is
the result of a minority of low-income households (3 per cent of those in the bottom 20
per cent in the two years to 2012-14) receiving substantial gifts (an average of £8,000
for this income group), rather than being a majoritarian experience for those on low
incomes.

In sum, this analysis suggests that gift giving shifts the timing of intergenera-
tional family transfers compared to inheritances, but doesn’t substantially affect the
distribution.

In this section we have set out the current pattern of intergenerational family transfers
and how this has evolved over recent decades. The following section turns to the pressing
question for those concerned about the living standards of younger cohorts today: how
such transfers will play out in future.

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Section 3

The future of intergenerational wealth

transfers
Having set out the incidence and distribution of inheritances and gifts for cohorts who
have received them to-date, in this section we consider the future of intergenerational
wealth transfers. Our analysis is based on a new dataset we have constructed that directly
links adults in the millennial generation to their parents, in order to compare income and
wealth levels.

Our findings underscore the growing importance of intergenerational wealth transfers for
younger cohorts: inheritances are set to rise across birth cohorts and become somewhat
more equally spread in the process. Even those millennials who currently have the lowest
incomes are more likely to have a home-owning parent than not, suggesting that wealth
transfers will provide a boost to those with low resources more so than they did in the past.

However, there are a number of reasons why future intergenerational wealth transfers do
not represent the solution to millennials’ home ownership or wealth woes. Even with the
potential for transfers becoming more common across income and wealth groups, nearly
half of 20-35 year old non-home owners have no parental property wealth and so may
expect never to get the kind of boost that would support them into owning. And even those
who can expect to get a share of parental property wealth appear likely to get it too late to
provide support during the expensive family-raising stage of lives. Finally, the transfer
of parental property wealth to 20-35 year olds would vastly increase absolute wealth
differences within this group, making it harder still to transition up the wealth scale.

Younger cohorts’ expectations suggest that the incidence

of inheritances may be somewhat more equal in future
The dominant approach to date for considering future patterns of intergenerational
family transfers has been based on survey questions that capture people’s expecta-
tions for giving or receiving them (these questions are limited to inheritances only
and so don’t capture gift expectations). Figure 11 reproduces previous work by the IFS
that combines people’s future expectations with past incidences of inheritance over
their lifetimes, and shows the resulting likelihood of a lifetime inheritance by current
household income quintile within each cohort.

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Figure 11:  Percentage of individuals who either have received or expect to receive an inheritance, by cohort and net
household income quintile: 2006-13, England
100% chart info (esp y axis)
Technical

90%
1970s
1960s
80%
1950s
70%
1940s
60%
1930s
50%

40%

30%

20%

10%

0%
1 (lowest income) 2 3 4 5 (highest income)

Notes: Figures for the 1930s, 1940s and 1950s cohorts are calculated using ELSA and figures for the 1960s and 1970s cohorts are calculated using WAS. Inheritances received or expected by
other household members are also included.

Source: IFS analysis of UCL et al., English Longitudinal Study of Ageing; ONS, Wealth and Assets Survey. See: A Hood & R Joyce, Inheritances and Inequality across and within Generations,
Institute for Fiscal Studies, January 2017

Two things are clear from this. First, this analysis confirms the story we told in Section 1
(based on older adults’ expectations of leaving a bequest) about the likely growth of inher-
itances in coming decades. Each successive birth cohort has higher expectations (combined
with receipts to-date) of inheriting than the previous one. Overall more than three-quarters
(77 per cent) of adults in England born in the 1970s have received or expect to receive an
inheritance, compared to less than four-in-ten (38 per cent) of the 1930s cohort.

Second, inheritance incidence across the household income distribution looks set to be
somewhat more equal for birth cohorts that will mainly inherit in future to the pattern
in birth cohorts that have mostly inherited already. Across all cohorts born between
the 1930s and 1970s, expectations (or the actualities) of receiving an inheritance are
around 30 percentage points higher in the top income quintile than the bottom one.
But coupled with rising expectations across the board, this means that the relative
difference between expectations for those with high and low incomes is lower in
younger cohorts. Strikingly, more than half of the bottom 20 per cent of the 1970s cohort
expect to receive (or have already received) an inheritance. This finding supports one of
the key reasons for optimism regarding the future pattern of intergenerational wealth
transfers discussed in Section 1 of this report: factors such as rising home ownership
in older generations mean wealth transfers looks set to be more widely spread in future
than they were in the past.

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High-income millennials have the highest parental

property wealth, but even in the lowest fifth of incomes,
most people have some
Asking people about their expectations is one way of drawing inferences about future
intergenerational family transfers. Another obvious approach would be to directly
observe the wealth levels of the parents of members of younger generations, and
consider what effects the transmission of this wealth might have, now or in future.
The challenge is that there is no readily available UK dataset that directly links adults
and their parents, unless they happen to be living in the same household. However by
exploiting the long time-series of the BHPS (and Understanding Society, its successor),
and the fact that that most younger adults originally joined the sample via their parents’
household, we can create one. Our approach to constructing a dataset directly linking
records for millennials no longer living with either of their parents to those parents is
described in Box 1.

i Box 1: Methods and approach for constructing a dataset pairing millenni-

als and their parents
The data used in the analysis in this section is drawn from On various demographic measures, our sample reflects
the British Household Panel Survey (BHPS), and Under- well the wider group of 20-35 year olds in the 2015-16
standing Society, its successor. BHPS is a longitudinal dataset. To further ensure representativeness, we adjust
survey that began in 1991 with a representative sample survey weights to correct for the likelihood of a 20-35 year
of British households. In subsequent years the survey old appearing in our sample or not based on observed
has tracked all members of those original households characteristics.1
including when households move or individuals leave to
join a new household (for example, adult children leaving Our analysis focuses on property wealth. This is because
home). Any future children of these original sample only limited information on financial wealth has been
members are also tracked (and anyone any of these collected in BHPS / Understanding Society (and only in
people shares a household with). Family relationships four of the 25 waves), and no information on pension or
are recorded in any survey wave when people are living physical wealth has been collected. Further, we focus on
in the same household (but not in subsequent waves gross property wealth held in primary residences only,
when they no longer share a household, even if related as this is the only property wealth measure that has been
family members remain in the sample). These sampling collected consistently in every wave since wave three.
protocols were maintained when the BHPS sample was These significant limitations mean this analysis does not
boosted, and when the sample was significantly refreshed set out to estimate the total parental wealth of millennials.
in 2009-10 as part of the first Understanding Society wave. Rather, by way of illustration of their wider resources, we
focus on one major asset class (which for most people
By tracking members of the latest (2015-16) Understanding is the main store of wealth that can be bequeathed) for
Society sample back through previous waves to when they which detailed information is available.
lived in different households, we can therefore identify a
number of family relationships to other sample members To minimise the effects of survey attrition, when parents
who they are no longer living with. We construct a dataset are not present in the 2015-16 sample but have been
of 20-35 year olds (roughly the oldest three-quarters of observed recently, and when their absence is not due
the millennial generation in 2015-16) who are not currently to death, we project their property wealth forward to
living with either parent but for whom we have identified 2015-16 using average wealth increases in the data.
at least one parent in the historic BHPS / Understanding
Society data. We exclude young adults currently living with 1 This is the same as the re-weighting method used in our
at least one parent because of concerns that their inclusion previous study of wealth for the Intergenerational Commission.
would bias income and wealth trends. For example, appar- For details, see: C D’Arcy & L Gardiner, The generation of
ently-low personal incomes may mask significant reliance wealth: Asset accumulation across and within cohorts, Resolu-
on parental resources to support living standards. tion Foundation, June 2017

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While the data we use in the remainder of this section has significant advantages in
directly linking observed characteristics of parents and those of non-resident adult
children, our approach here carries limitations and warrants certain caveats. These
include the fact that:

• Because of data limitations, we focus only on parental property wealth, and only
on the gross amount of wealth held in main residences. This means that we do not
account for mortgage debt, wealth held in other properties or any non-property
wealth when considering the assets of millennials’ parents (see Box 1 for more
details). Thus our analysis provides no more than an illustration of their wider
resources and the amount they might be able to give or bequest in future, albeit in
terms of the main element of wealth that can be bequeathed for most people.

• When we consider levels of parental gross property wealth in relation to their

children’s income and wealth, we do not make any attempt to model the growth or
depletion of this wealth after 2015-16. If this wealth is inherited at death, it’s very
possible that its value could be significantly larger or smaller than in the latest
data, for example due to further sharp increases in house prices on the one hand,
or depletion due to social care expenses on the other. Modelling such effects would
be complex and subject to huge uncertainty, and in addition, throughout much of
this analysis we make no definitive judgement as to whether intergenerational
family transfers happen when parents die or beforehand. It is for these reasons that
we take 2015-16 parental property wealth levels at face value in our analysis. So
our findings do not represent a definitive assessment of how much property wealth
millennials will get from their parents, but rather an illustration of the likely differ-
ential incidence of future gifts and inheritances.

• For 33 per cent of 20-35 year olds in our sample we only observe one parent, meaning
that they have never been recorded as living with another since first entering the
sample. In the main, this is because these millennials grew up in single-parent
households, at least in their teenage years. In these cases, we assume no parental
property wealth for the absent parent. This is probably an underestimate as non-res-
ident parents will be likely to leave inheritances in some cases. On the other hand,
some may not have maintained much of a relationship with their children, and any
inheritance may be smaller on average if they also have children in other families. On
balance, we opt to capture only that parental wealth which we can directly observe. In
doing so we essentially highlight the potential endurance of the experience of having
relied largely on the resources of only one parent during childhood.

• By measuring only direct links between millennials and their parents, this analysis
implicitly ignores the role that wealth transfers to millennials from other relatives,
or non-relatives, will play in future. We saw in Section 2 that the majority of money
inherited has come from parents in recent years, so this is felt to be a fair assumption
for illustrative analysis such as this. However it should be noted that other inher-
itances and gifts – for example from grandparents – may play more of a role in future
than they have in the past. For example, the rising life expectancies of their parents
and the challenges that millennials are facing in the labour and housing markets
may drive grandparents and others to direct inheritances and gifts towards them.

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With these caveats in place, Figure 12 shows the proportion of this sample of 20-35 year
olds who have a parent who owns their home, and presents different measures of the
gross parental (main residence) property wealth for this group, across the distribution
of gross personal incomes.

Figure 12:  Median gross parental property wealth of 20-35 year olds not living with their parents, and proportion with
a parent who owns, by gross personal income quintile: 2015-16, UK

Technical chartwith
Proportion info a
(esp y axis)
home-owning parent Parental property wealth
90% £270k

80% £240k

70% £210k
% with a home-owning
parent (left axis)
60% £180k

50% Property wealth per £150k

parent (right axis)
40% Total property £120k
wealth of parent(s)
(right axis)
30% £90k

20% £60k
Total parental property wealth
per sibling (right axis)
10% £30k

0% £0
1 (lowest 2 3 4 5 (highest
income) income)

Notes: Gross personal income captures earnings, benefits, pensions and investment income. Data captures wealth in main residence only. See Box 1 for further methodological details.

Source: RF analysis of ISER, British Household Panel Survey / Understanding Society

Turning first to parental home ownership (the red line), we find that this rises with the
personal incomes of this group of millennials: 55 per cent of 20-35 year olds in the bottom
fifth of incomes have at least one home-owning parent, compared to 80 per cent in the top
fifth. However, it remains the case that more than half of the lowest-income 20-35 year olds
might expect to get a share of a parent’s property one day. While not directly comparable,
this points to a higher incidence of intergenerational wealth transfers for those with low
resources in future than the past incidence discussed in the previous section (only 32 per
cent of 65-80 year olds in the bottom 20 per cent of lifetime incomes inherited).

Turing next to property wealth per parent (i.e. the average per-adult property wealth
of parents if two have been identified, or for those with only one parent identified, the
per-adult property wealth of that parent) – the lighter teal-coloured line – we find that

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the median value rises across income quintiles. The top 20 per cent of 20-35 year olds
not living with their parents have more than twice that of the bottom 20 per cent –
£125,000 and £55,000 respectively.

The middle-shaded teal line in Figure 12 then shows total parental property wealth,
so capturing that of both parents if two have been observed. This increases observed
inequalities in parental property wealth: the ratio of the typical value in the highest
income quintile to that in the lowest income quintile rises from 2.4 to 2.7. This essentially
reflects the higher likelihood of having grown up in a single parent household (or, more
accurately, having only ever been observed living with one of one’s own parents) among
lower-income 20-35 year olds.

Finally, the darkest-coloured teal line in Figure 12 divides total parental property wealth
by the number of siblings who have ever been observed in the data, on the assumption
that any future gifts and inheritances are equally shared among children.28 Again this
increases observed inequalities in parental property wealth, with the typical value of
per-sibling parental property for the top 20 per cent of this group of millennials 3.8
times as high as the value for the lowest-income fifth (figures of £125,000 and £35,000
respectively). This results from the fact that the highest-income millennials tend to
have fewer siblings.

The implication of this analysis is therefore that millennials with higher current
incomes might expect to inherit (or be given) far more property wealth from their
parents that those with lower current incomes. In line with the findings of the previous
section, this variation in potential transfers by current income levels, while stark, is not
as great as the variation in current incomes themselves (typical gross personal incomes
are 6.6 times as high for the top quintile of our sample of 20-35 year olds not living
with their parents as in the bottom quintile). And nor does this analysis represent the
value of intergenerational transfers as a share of lifetime incomes: the previous section
suggested that transfers have played a more important role for those with the lowest
lifetime incomes than the approach here can reveal. Nonetheless, the strong suggestion
from this direct analysis of who millennials’ parents are is that intergenerational wealth
transfers in future will be unequally shared in absolute terms, but greater relative to
current incomes for those low-income adults who do inherit.

A number of sampling choices and assumptions have been taking to arrive at this
conclusion, but it appears robust to different analytical specifications. For example,
including 20-35 year olds currently living with their parents, while boosting per-sibling
parental property wealth in the lowest income quintile (in part because we probably
don’t observe the full extent to which co-resident parents are supporting young adults’
living standards in the income data), maintains the shape of outcomes across the rest of
the distribution. And it is not the case that our results simply reflect younger 20-35 year
olds, who tend to have lower incomes, also tending to have less wealthy parents. Typical
per-sibling parental property wealth is similar for 20-25 year olds in our sample as it is
for 30-35 year olds, and the shape of the distribution of per-sibling parental property
wealth is maintained when we hone in on these sub-groups within our overall age range.

The conclusions of this analysis of parental property wealth in relation to millennials’

current income levels support the prospect, discussed in Section 1, that intergenerational
family transfers will be somewhat more widely spread in future. Even for those 20-35

28 Past research has suggested that equally sharing, or leaving more to less well-off children, are the most com-
mon approaches. See: E Karagiannaki, ‘Recent trends in the size and the distribution of inherited wealth in the
UK’, Fiscal Studies 36:2, 2015

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year olds in the bottom fifth of incomes, more than half have some parental property
wealth. That raises the potential for a higher incidence of inheritances for those with
low resources than in the past. In addition, while the absolute gaps in parental property
wealth between lower- and higher-income millennials are stark, in relative terms these
gaps are smaller than income differences themselves.

Nearly half of millennials who don’t own homes have

non-home owning parents only
So this analysis gives some reasons for optimism regarding the future pattern of inter-
generational wealth transfers, but key questions remain. In particular, to what extent
will future transfers address low levels of home ownership in younger generations, and
what will they do to wealth inequality?

Turning first to home ownership, an important test is how the likelihood of millennials
owning their own home varies with their parents’ home-ownership rates. Overall 33 per
cent of our sample of 20-35 year olds not living with either parent own their home, and
64 per cent of them have at least one parent who owns. In line with past research,29 we
find that these groups are strongly overlapping. 83 per cent of home-owning millennials
have at least one home-owning parent (so might expect to receive some of the wealth in
that home in future), compared to only 54 per cent of millennials who don’t already own.
In other words, nearly half (46 per cent) of 20-35 year olds who don’t own a home (31 per
cent of the group as a whole) have no parental property wealth. Therefore while inter-
generational wealth transfers may help many non-owners get into property ownership
in future, there is a sizable group of millennials for whom such an outcome appears
much less likely.

For those who do get them, inheritances are likely to

come too late to support living standards during the
expensive family stage
Related to the question of whether millennials – especially those who aren’t already
home owners – appear likely to benefit from the transfer of property wealth from their
parents in future is the question of when this wealth transfer might happen. While we
make no firm judgement in this analysis as to how wealth is transferred, it is clearly
difficult to release wealth from properties that people are living in,30 so it is reasonable
to assume that a large share of the property wealth we measure will come in the form
of inheritances rather than gifts. By applying the latest mortality rates by age to the
parents of 20-35 year olds observed in our dataset (this time including those currently
living with their parents), and accounting for past parental deaths, Figure 13 shows the
distribution of ages at which inheritance might be expected.

29 J Blanden & S Machin, Home Ownership and Social Mobility, Centre for Economic Performance, London
School of Economics, January 2017
30 Indeed, our previous analysis of wealth for the Intergenerational Commission showed the very limited extent
to which older adults appear to have downsized or released equity from their properties in recent years. See:
C D’Arcy & L Gardiner, The generation of wealth: Asset accumulation across and within cohorts, Resolution
Foundation, June 2017

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Figure 13:  Proportion of adults aged 20-35 by age at which their parents have died or are expected to be deceased:
2015-16, UK
6%
Technical chart info (esp y axis) 1

Working Working life raising children Working life post-children Retirement

life pre- 0.9

children
5%
0.8

0.7

4%
0.6

3% 0.5

0.4

2%
0.3

0.2

1%
0.1

0% 0

25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75
Age

Notes: In contrast to previous analysis in this section, here we include 20-35 year olds who are living with parents as well as those who aren’t. Includes past parental deaths as captured in the
data. To project future parental deaths, the distribution of 2016-based cohort mortality rates (estimated separately for each age and sex) is applied to parents of 20-35 year olds in 2015-16.
For those with two parents identified in the data, the chart shows the age at which their last parent is expected to die. See Box 1 for further methodological details.

Source: RF analysis using ISER, British Household Panel Survey / Understanding Society; ONS, Life Tables

While spending more of one’s life with parents around is likely to be very welcome for
young adults and probably a living standards boost in itself, we find that this parental
longevity is pushing inheritances for millennials beyond the child-rearing age to just
before retirement. The most common age of inheritance is expected to be 61 for 20-35
year olds, a full 30 years after the age at which they will typically start having children.
While inheriting on the run-in to retirement would be a welcome boost, if intergener-
ational wealth transfers are to be relied upon to get into home ownership this timing
is likely to be sub-optimal. The security and lower housing costs that owning a home
entail are particularly important when bringing up families, and to the extent that
secure housing allows people to take risks in other areas, when building up careers and
earnings potential.

We have seen that intergenerational wealth transfers cannot be relied upon to ensure
entry into home ownership for many millennials. In addition, we find that even for those
who have this route into owning potentially open to them, the timing may well be far
later than is desirable.

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Millennials owning high-value properties have the

highest parental property wealth
Figure 14 delves beneath the stark home ownership correlations between millennials
and their parents to explore the associations between average property wealth levels.
For different bands of 20-35 year old property wealth, it shows the average (both mean
and median) per-sibling gross property wealth of parents.

Figure 14:  Average gross per-sibling parental property wealth of 20-35 year olds not living with their parents, by gross
property wealth band: 2015-16, UK
£250k chart info (esp y axis)
Technical

Median Mean

£200k
£195k

£165k £165k
£150k

£125k
£100k
£105k

£85k £80k
£50k

£35k

£0
£0 £1-£99,999 £100,000-£199,999 £200,000+
Gross per-adult property wealth of 20-35 year olds

Notes: Data captures wealth in main residence only. See Box 1 for further methodological details.

Source: RF analysis of ISER, British Household Panel Survey / Understanding Society

We find that the 67 per cent of 20-35 year old who don’t own homes (those with no
property wealth) have lower average parental property wealth than all groups of owners:
a mean of £85,000, and a median of just £35,000. This is unsurprising given the correla-
tions between parent and child home ownership status discussed above. Furthermore,
among the one-third of 20-35 year olds who do own their own home, parental property
wealth varies strongly in relation to their own wealth. Those with less than £100,000
of gross property wealth had mean per-sibling parental property wealth of £105,000,
while those with their own property wealth of £200,000 or more had mean per-sibling
parental property wealth of £195,000. Co-location in parts of the country with higher
house prices will play a role in driving these trends, but the associations between
parental and child property wealth levels are nonetheless stark.

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The transfer of all primary property to millennials from

their parents would increase absolute property wealth
inequalities among millennials
So what impact might future intergenerational wealth transfers have on the distri-
bution of wealth among millennials? Given we only measure gross property wealth
in main residences in this analysis, and don’t model any future growth or depletion of
the wealth levels of either 20-35 year olds or their parents, this is not a question we can
answer definitively. But having observed the distribution of parental property wealth in
relation to millennials’ own wealth levels, as an illustrative thought experiment we can
consider what impact the immediate transfer of this wealth would have on the 20-35
year old distribution. This thought experiment is presented in Figure 15.

Figure 15:  Median gross property wealth per adult of 20-35 year olds not living with their parents excluding and
including parental property wealth, by gross property wealth quintile: 2015-16, UK
£350k chart info (esp y axis)
Technical

£300k

£250k

£200k
Property wealth plus per- £155,000
sibling share of total parental
property wealth
£150k

£100k

Property wealth
£50k

£35,000
£0
1 (lowest wealth) 2 3 4 5 (highest wealth)

Notes: Data captures wealth in main residence only. See Box 1 for further methodological details.

Source: RF analysis of ISER, British Household Panel Survey / Understanding Society

Because only 33 per cent of 20-35 year olds in our sample currently own their own
homes, the effect of this thought experiment is the same across the bottom three-fifths
of the 20-35 year old property wealth distribution. Typical wealth goes from £0 to the
median per-sibling value of their parental property wealth that was shown in Figure 14:
£35,000. By contrast, for the 20 per cent of 20-35 year olds with the highest property
wealth the increase is £155,000, taking their total wealth in this thought experiment to
£295,000. The result is a near-doubling of the absolute difference between the top fifth

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and bottom fifth of the millennial gross property wealth distribution, from £140,000 to
£260,000. However many 20-35 year olds go from having no property wealth to having
some, so relative inequalities decrease.

While we can’t say precisely what the effect of future intergenerational wealth transfers
on relative wealth inequality will be, this thought experiment demonstrates the potential
for welcome reductions. But the effect of future intergenerational wealth transfers on
absolute gaps is at least as important. In particular, in periods of weak income growth
especially, growing absolute wealth gaps will make it harder still for individuals to
earn their way towards being wealthy on the basis of their human capital, as opposed
to getting there on the basis of what their parents had. And even if human capital were
able to do the work for younger generations, it’s worth noting that this is also strongly
associated with parental wealth levels for our sample of 20-35 year olds not living with
their parents: median per-sibling parental property wealth is £85,000 for those with
degrees, but only £45,000 for those without.

Inheritance tax will do increasingly little to reduce these

absolute gaps in millennials’ property inheritances
A potential caveat to this conclusion that the transfer of parental property wealth to
20-35 year olds would increase absolute wealth inequalities is that they wouldn’t
actually get all of it – the impact of inheritance tax would lessen this effect. As we said
earlier in relation to the age at which millennials might expect to inherit, it is reasonable
to assume that a large share of parental property wealth held in main residences will be
transferred at death. If that is the case (or if it is transferred in the seven years prior) it
will be subject to inheritance taxation.

In Figure 16, we simulate the effect that inheritance tax might have on the mean
per-sibling property wealth levels that were shown in Figure 14 (approximately
accounting for the likely value of non-property assets in estates, see chart notes for
details).31 We conduct this simulation using both the 2015-16 inheritance tax system,
and the system as it will exist in 2020-21 after the new nil-rate band for residential
property assets (raising the overall tax threshold to £500,000 for most people, meaning
that couples can pass on a £1 million estate tax-free) has been fully introduced. Again,
it should be noted that 2015-16 parental property wealth values are taken at face value,
for example we do not model any house price growth or depletion due to social care costs
up to death. So this should not be taken as a precise estimate of future pre- and post-tax
inheritances, but rather a rough illustration of potential tax incidence.

31 On the assumption that they are transferred as inheritances at death or in the seven years prior, and therefore
subject to taxation.

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Figure 16:  Mean gross parental property wealth (including and excluding inheritance tax incidence) of 20-35 year olds
not living with their parents, by gross property wealth band: 2015-16, UK
£250k chart info (esp y axis)
Technical
Per-sibling parental property wealth
Per-sibling parental property wealth less esimated inheritance tax – 2015-16 system
Per-sibling parental property wealth less esimated inheritance tax – 2020-21 system
£200k

£150k

£100k

£50k

£0
£0 £1-£99,999 £100,000-£199,999 £200,000+
Gross per-adult property wealth of 20-35 year olds

Notes: Data captures wealth in main residence only. Parental inheritance tax is estimated by multiplying gross parental property wealth by two – on the basis that around half of the value of
estates at death was made up of residential property in 2014-15 according to HMRC data – and applying tax thresholds and rates to this amount. This estimate is then divided by two, again
to account for the fact that residential property composes around half the value of estates at death. The resulting tax burden is then shared equally among siblings. The mean average is used
here rather than the median to clearly show the differential effects of different inheritance tax systems. See Box 1 for further methodological details.

Source: RF analysis of ISER, British Household Panel Survey / Understanding Society

The teal-coloured bars in Figure 14 suggest that even if all of this wealth was taxable,
the impact on the amount of parental property wealth transferred would not be huge.
More pertinently, comparing the two teal-coloured bars, which show the inheritance
tax system before and after the reforms currently underway, suggests that these
reforms are set to significantly reduce the tax burden on property. Across all 20-35 year
olds not living with their parents, we estimate that inheritance tax would reduce the
average amount of property transferred by 10 per cent under the 2015-16 tax system,
but by only 5 per cent under the 2020-21 tax system. The reduction is larger for 20-35
year olds who have £200,000 or more of property wealth of their own already, from an
average tax burden of 14 per cent under the 2015-16 tax system, to 5 per cent under the
2020-21 system.

While this analysis is only illustrative, it suggests that the taxation of inheritances will
do increasingly little to reduce the large absolute differences between future parental
wealth transfers across the millennial wealth distribution. The discussion in Section 4
returns to the question of taxation of inheritances and gifts, and other policy implica-
tions emerging from this analysis.

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‘Assortative mating’ looks set to amplify absolute

inequalities in intergenerational family transfers at the
household level
The analysis so far in this section has focused on individuals and their parents. When
thinking about the resources that people can access over their lifetimes, the other consid-
eration alongside these inter-generational relationships is intra-generational ones: the
people young adults couple up with. This isn’t something we can analyse directly in
the BHPS / Understanding Society dataset we’ve used so far in this section,32 however
we can explore coupling effects in terms of individuals’ inheritance expectations as
measured in WAS.33 Figure 17 summarises the relationship between the inheritance
expectations of each partner in couples in which adults were aged under 50 in 2006-08.

Figure 17:  Mean inheritance expected of partner, by individual’s expected inheritance, for adults in couples aged
under 50: 2006-08, GB

Technical chart info (esp

Mean expected y axis) of second adult in couple
inheritance
£200k

£180k £190k
£180k
£160k

£140k

£120k
£125k
£100k

£80k
£85k
£60k £70k

£40k £45k £50k

£40k £40k
£20k £25k
£0
£0 <£1,000 £1,000- £5,000- £10,000- £25,000- £50,999- £100,000- £250,000- £500,000+
£4,999 £9,999 £24,999 £49,999 £99,999 £249,999 £499,999
Expected inheritance of first adult in couple

Notes: Mean expected inheritance of second adult in couple calculated using the mid-points of banded responses.

Source: RF analysis of ONS, Wealth and Assets Survey

32 The BHPS and Understanding Society allow us to identify the parents of young adults who originally joined
the sample via their parents’ household. The people these individuals couple up with only enter the sample
when they cohabit, however, so tracing their parents is not possible.
33 We take the view that people will be unlikely to report any inheritance their partner might expect as part of
their own inheritance. Our reasons are the same as the IFS’s when they conducted similar analysis, which are
summarised in footnote 68 in: A Hood & R Joyce, The Economic Circumstances of Cohorts Born between the
1940s and the 1970s, Institute for Fiscal Studies, December 2013. For similar reasons, we assume that people
don’t consider future inheritances from a spouse or partner when they respond to questions about future
inheritance expectations.

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The results are striking. At one end of the spectrum, coupled adults under 50 who expect
not to get any inheritance at all are with partners who expect an average inheritance of
£25,000. At the other, those who expect to get an inheritance of £500,000 or more have
partners with an average inheritance expectation of £190,000. The clear implication is
that the home ownership correlations between individual millennials and their parents,
and prospects for the transfer of their parental property wealth to increase absolute
wealth inequalities, will be amplified at the household level.

The analysis in this section has demonstrated both the growing role that intergenerational
wealth transfers will play for younger generations, and the limitations of relying on them
to address these cohorts’ home ownership gaps or wealth inequality levels. The following
section concludes and briefly reflects on the implications of this analysis for policy.

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 The million dollar be-question
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Section 4

Conclusion
The analysis in this report has assessed the role that intergenerational family transfers
– inheritances and gifts – will play in addressing the generational living standards
challenge that Britain faces. Nowhere is this challenge clearer than in relation to home
ownership and wider wealth accumulation for today’s younger generation, so the future
flow of assets down generations appears an obvious potential avenue via which the
current situation can be ameliorated.

Considering the millennial generation as a whole, it’s clear that the large sums of wealth
held by older generations will provide a major boost to younger generations’ living
standards in years to come. Inheritances are set to more than double over the next two
decades and peak in 2035, as the generally high-wealth baby boomers progress through
old age. And a greater share of young people today are likely to benefit from intergener-
ational transfers of wealth than did in the past, driven by fast-rising home ownership
rates for today’s older generations compared to predecessors.

However, future intergenerational wealth transfers are by no means the solution to

the low home ownership rates and wealth accumulation challenges today’s younger
generation faces. Even with the potential for more widely-spread wealth transfers,
nearly half of 20-35 year old non-home owners have no parental property wealth,
making it unlikely that they will receive the kind of transfer that would support them to
own themselves in future. Even those who can expect to get a share of parental property
wealth will inherit too late to use this to support living standards during the expensive
child-rearing stage. And the transfer of parental property wealth to 20-35 year olds
would vastly increase absolute wealth differences within this group, making it harder
still for individuals to earn their way towards being wealthy, as opposed to getting there
on the basis of their parents’ wealth. The fact that people tend to couple up with partners
who have similar inheritance expectations to their own only serves to amplify these
gaps at the household level.

Of course there are many aspects of how families use their wealth and share it across
generations that this analysis has not considered. For example, depending on the
funding system in place, social care costs could significantly reduce the amount of
wealth bequeathed at the end of lives. And support flows in both directions in families,
with younger generations often providing both financial and in-kind support to older
ones, particularly as they near the end of lives. But focusing on the narrow question
of whether wealth transfers down generations have the potential to address home
ownership and wealth distribution challenges for young adults, our clear conclusion is
that while playing an important part, they won’t be sufficient.

On this basis, forthcoming papers for the Intergenerational Commission will consider
what policy changes might be needed to support wealth accumulation within younger

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Section 4
43

generations and temper the role of intergenerational family transfers in driving up

absolute wealth gaps. Some areas for consideration emanating from the analysis in this
report are as follows:

• Because inheritances look set to come too late to help members of younger
generations during the expensive family-raising stage of their lives, it’s worth
considering how families can be supported to share wealth earlier. Policies that
facilitate downsizing and equity release are options in this area.

• Because intergenerational wealth transfers in future – while more common across

the income and wealth scales than in the past – will remain unequally shared, the
redistributive potential of inheritance taxation must be considered. The history
and forecast future of inheritance tax receipts are summarised in Figure 18, which
shows that after a decline in 2007-08, receipts have caught back up to around 5
per cent of the value of estates. However, changes to inheritance tax currently
underway (the new nil-rate band for residential property assets, which raises the
overall tax threshold to £500,000 for most people) are expected to temper real
growth in receipts despite big expected increases in the value of inheritances. If
we want inheritance taxation to do more rather than less, tax rates, tax thresholds,
whether tax is levied on estates or receipts, and the treatment of lifetime gifts are
all important considerations.

Figure 18:  Total real value of estates passing on death and inheritance tax receipts, UK
CPIH-adjusted to 2017 prices
Total value of estates passing on death Total inheritance tax receipts
£90bn £5.5bn
Forecast

£80bn £5.0bn

Introduction
£70bn of main £4.5bn
Value of estates residence nil-
(left axis) rate band
£60bn £4.0bn

£50bn £3.5bn

£40bn £3.0bn
Inheritance tax
(right axis)
£30bn £2.5bn
Introduction of nil-rate Nil-rate band
band transfer to threshold
partners frozen
£20bn £2.0bn
1995-96 1998-99 2001-02 2004-05 2007-08 2010-11 2013-14 2016-17 2019-20

Notes: Only around half of all estates (excluding those going to a surviving spouse) are covered by these records, however those excluded are small estates consisting only of cash and per-
sonal effects of less than £5,000 held in particular forms. These records therefore cover the vast majority of the value of inheritances. CPIH projected using OBR CPI forecasts.

Source: HMRC, Inheritance tax statistics; OBR, Economic and Fiscal Outlook

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• Because even a broader system for inheritance taxation would still leave large
inequities in the amounts individuals receive from older generations, we should
also consider the wider ‘social inheritance’ that today’s generations are leaving
to tomorrow’s. This means thinking about investment in both public and private
infrastructure, levels of national debt, the build-up of human capital through the
education system, and the condition of the environment.
With intergenerational family transfers set to grow rapidly over coming decades,
now is the right time to be thinking about these issues. As such, the Intergenerational
Commission will consider these and other policy areas in forming recommendations for
a renewal of the intergenerational contract in Britain.

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 The million dollar be-question
Contents
45

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 Resolution Foundation is an independent research and policy
organisation. Our goal is to improve the lives of people with low to
middle incomes by delivering change in areas where they are currently
disadvantaged. We do this by:

»» undertaking research and economic analysis to understand the

challenges facing people on a low to middle income;

»» developing practical and effective policy proposals; and

»» engaging with policy makers and stakeholders to influence

decision-making and bring about change.

For more information on this Report, contact:

Laura Gardiner Senior Research and Policy Analyst

laura.gardiner@resolutionfoundation.org
020 3372 2954

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