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£8.5 billion inheritance skipping a generation every year

Posted in: Research

  • People living longer is driving a significant change in inheritance trends
  • Every year over £8.5 billion[i] in inheritance is skipping a generation to benefit younger relatives who need more of a financial boost
  • 45% of the inheritance is being left directly to younger generations and 55% is passed on by the original beneficiaries
  • ‘Living’ inheritances now becoming popular, with one in three (34%) over 55s having given or are planning to pass on wealth to younger relatives as a gift
  • Average inheritance left by relatives is £11,000[ii] and living inheritance stands at £27,000

New research by financial services provider OneFamily has revealed an estimated £8.5 billion of inheritance wealth is now skipping a generation each year, as older relatives recognise the youngest family members are more in need of support.

As a result, despite ONS data showing the age people inherit family wealth is between 55 to 64 years[i], many younger relatives are benefitting from a financial legacy earlier, helping to rebalance wealth between the older and younger generations.

Overall, £42 billion has skipped a generation over the last five years. £19 billion has been left directly to younger generations while the remaining £23 billion has been passed on by the original beneficiaries, usually their parents.

This trickling down of inheritance is a popular practice among older beneficiaries, with over half (57%) of those aged over 55 who received family wealth since turning 50 choosing to pass it on to children and grandchildren. This is largely via cash or helping to fund big one-off expenses such as university or getting on the property ladder. In fact, one in five (22%) passed on inherited wealth to younger relatives specifically in a bid to help them buy their first home.

The majority (70%) of over 55s feel that the current economic climate means it is much harder for younger generations financially compared to when they were younger and, as a result nearly a third (31%) say they want their wealth, and that of their parents, to be shared and enjoyed across the family. Nearly half (47%) of over 55s feel responsible for supporting their family financially, while over a third (36%) say they are currently conserving their wealth in order to pass it down.

The difference in wealth amongst younger and older people is also causing an increase in ‘living’ inheritances, whereby the wealth is given to loved ones as a gift. Nearly one in five (18%) over 55s have already given relatives a living inheritance, and a further 15 per cent plan to do the same. The average living inheritance is a substantial £27,000, suggesting it is most likely wealthier families behind this trend. Though the most popular reason for this is the fact that their younger relatives need the money now (55%), other significant factors include wanting to see their contributions in action (53%) and minimising inheritance tax charges (29%).

While some over 55s are using savings or drawing down from pensions, many are keen to use the money tied up in their home. 12 per cent are downsizing, while six per cent are unlocking funds through equity release. Gifting family members money is now one of the most popular uses for equity release with a quarter (24%) of homeowners aged over 55 saying they would use the equity in their home to help their family.

Nici Audhlam-Gardiner, Managing Director of Lifetime Mortgages at OneFamily comments:

“Finding ways to spread wealth fairly and evenly across generations is something that’s increasingly important for many families today. We’re also seeing that gifting a living inheritance is a popular way to support younger relatives who need the money now.

“When it comes to thinking about providing a living inheritance, a lifetime mortgage is one of the options available to older homeowners. It allows them to release money from their home and turn it into a cash lump sum to spend on whatever they please. And as it is not a single use product, it can be used in many ways, from helping out families financially to enjoying life’s little luxuries.” 

[1] According to the latest ONS population data (June 2018), there are 19,772,299 UK adults aged over 55. 9% of over 55s say their parents left wealth directly to third generation relatives in the past five years. The average inheritance across all age groups is now £11,000 according to the latest ONS analysis of data from the Wealth and Assets Survey (Oct 2018). 1,779,506 x £11,000 = 19,574,566,000. Of those over 55s that had received an inheritance since turning 50 (7,711,196) 28% passed this on. 2,159,135 x £11,000 = 23,750,474,000. Add this to 19,574,566,000 = £42 billion, or £8.5 billion per year

[1] ONS analysis of data from the Wealth and Assets Survey (October 2018)

[1] According to the latest ONS analysis of data from the Wealth and Assets Survey on the distribution of inheritances, gifts and loans in Great Britain (Oct 2018).