£8.5bn of inheritance wealth skips a generation

Michael Lloyd

August 7, 2019

cash purchases

An estimated £8.5bn of inheritance wealth is now skipping a generation each year, as older relatives recognise the youngest family members are more in need of support, OneFamily has found.

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

Nici Audhlam-Gardiner, managing director of lifetime mortgages at OneFamily, said: “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.”

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

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%) said 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%) said 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% plan to do the same.

The average living inheritance is a substantial £27,000, suggesting it is most likely wealthier families behind this trend.

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. Some 12% are downsizing, while 6% 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.

Dave Harris, chief executive officer at equity release lender, more 2 life, added: “This research from OneFamily highlights just how much families are supporting one another to help achieve their financial goals.

“The movement of wealth between generations is gaining increasing prominence as parents and grandparents help their younger relatives fund major milestones, such as their first property purchase or paying for a wedding, and this shows no signs of slowing down.

“With demand at such a high it is vital for older relatives to be made aware of the different ways in which they can gift wealth to their children and grandchildren which also align with their own personal circumstances and financial goals.”

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