The amount younger people inherit is set to rise according to new research; but the trend is likely to reverse in years to come.
The survey, by the Institute for Fiscal Studies (IFS), found that:
- The level of wealth in elderly households, where all members are 80 or over, has risen by 43% over the past 10 years
- 44% of elderly households intend to leave an inheritance of £150,000 or more, up from 24% 10 years ago
- 75% of people born in the 1970s expect to receive an inheritance
The increase is mainly due to a large rise in house prices. Over the past 10 years, the average home in England and Wales has risen in value from £179,514 to £227,613; an increase of 27%. However, in London house prices have risen by 80%. (Source: Land Registry)
Other factors also play a part. Older generations are more likely to have been members of generous final salary pensions, stock markets have generally provided positive returns and despite current low interest rates, returns from savings accounts have often been attractive.
The research found that the wealth of older generations is distributed unevenly with 50% of all households holding 90% of the wealth and the top 10% owning 40%.
The research clearly shows a link between large inheritances and high income; nearly 10% of the highest earners have inherited more than £250,000, compared to just 1% of lower earners.
Whilst younger people will benefit from the increased wealth of older generations, the trend is unlikely to continue as homeownership levels drop and younger people find it harder to accumulate wealth.
Addressing the issue of inequality, Paul Johnson, Director of the IFS, said: “About half of people will inherit little or nothing, whereas the other half are going to inherit quite a lot.”
Inheritance tax warning
As the government receives more money than ever in Inheritance Tax revenues; £4.7 billion in 2015/16 double the level of seven years ago, both older and younger generations should plan carefully if they wish to maximise the amount of money passed on.
Currently, an individual can pass on £325,000 in their estate without paying tax. The figure rises to £650,000 for married couples and civil partners. Furthermore, a range of additional exemptions apply, although these usually involve relatively small amounts of money.
In April 2017, the Transferable Main Residence Allowance (TMRA) will be introduced. The TMRA is intended to help older generations pass on the value of their main residence tax-free. By 2020/21 it will allow a married couple to pass on up to £1,000,000, including the value of their home, without paying Inheritance Tax.
We are here to help
Despite the introduction of the TMRA both older and younger generations, preferably acting together, should take advice to ensure that their estate is distributed in accordance with their wishes and as tax-efficiently as possible.
Later in January we will publish another article on this topic; giving hints and tips on how to reduce your IHT liability.
In the meantime, if you are concerned about your estate and the tax bill your beneficiaries may have to pay, we are here to help.
Call Bev or Sarah on 0115 933 8433.