Millennials will enjoy the largest and most wide-reaching ‘inheritance boom’ of any post-war generation but it will be too late to end the gap between generations.
The report by the Resolution Foundation found the large sums of wealth accumulated by older generations will provide a major boost to younger generations’ wealth accumulation and 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 grow older.
Laura Gardiner, senior policy analyst at the Resolution Foundation, said: “Older generations have benefitted hugely from the big increases in household wealth in Britain over recent decades.
“While the millennials have done far less well in accumulating their own assets, they are likely to benefit from an inheritance boom in the decades ahead.
“This is likely to be very welcome news for those millennials, including some from poorer backgrounds who in the past would have been unlikely to receive bequests.
“They have the good fortune to benefit from the luck of the baby boomer generation.”
Fast-rising home ownership rates for the generations born before and after the war means more young people today are likely to benefit from inheritances than did in the past.
Almost two-thirds of 20-35 year olds have parents who own property, which they might to expect to get a share of in future.
By contrast, only 38 per cent of adults born in the 1930s received an inheritance.
However, inheritances and gifts are not the solution for millennials’ much lower home ownership rates and slower wealth accumulation.
That’s because inheritances will be distributed unequally and arrive far too late in life.
Gardiner added: “But inheritance is not the silver bullet that will get a whole new generation on the housing ladder or address growing wealth gaps in society.
“Even for those millennials who will receive a bequest, it’s unlikely to come when they’re coupling up, having children, and trying to buy a family home when the extra wealth would be much needed, but as they approach retirement instead.
“These are big and complex shifts, but our national debate and our public policy have a long way to go to catch up with the fact that wealth and inheritance have grown significantly as features of modern Britain. It’s time they did.”
Millennials that have yet to get on the housing ladder are much less likely to have property passed onto them. Nearly half (46%) of non-home owning millennials have parents who don’t own either, suggesting parental wealth can’t provide a home or deposit towards one for everyone
Even for millennials who can expect an inheritance, this may happen far too late to help them onto the housing ladder, and may be more use for grandchildren’s home ownership.
Based on their parents’ life expectancies, the Foundation estimates that the most common age at which millennials inherit will be 61.
And while future intergenerational transfers will provide a welcome wealth boost to many who have built up little or no wealth, they will also increase absolute wealth differences between millennials.
The foundation said that the big increases in wealth in recent decades, and contrastingly weak income growth, means inheritance just widens the gap between the rich and poor younger people.
Inheritance tax will do increasingly little to dampen these wealth gaps. The new housing allowance will be fully implemented in 2020 and mean that up to £500,000 per adult can be passed on tax free.
This could halve the average tax burden on millennials’ parental property wealth if it was inherited at current levels.
Millennials are only half as likely to own their home at 30 as baby boomers were, while all cohorts born after 1955 have accumulated less wealth (property, financial assets and private pensions) than their predecessors had at the same age.