If you know someone who is retired, you may have heard them joke about them going on their next “SKI” trip. Generally understood to be an acronym for ‘Spending the Kids’ Inheritance’ a survey* in 2016 found that of 1,000 grandparents aged 50-70, one in six planned to spend their money and not leave provision for children in their Will. Having said that and despite today’s trend to spend, pensioners in their 80s and 90s are likely to leave more money for their children and grandchildren than any other previous generation. This is largely because of rising house prices, with more elderly people than ever before owning their own homes. The research undertaken by the Institute for Fiscal Studies (IFS) has calculated that the average real non-pension wealth has increased amongst the over 80s, from £160,000 per household in 2002–03 to £230,000 per household in 2012–13, a substantial increase.
It’s not just the amount of money people stand to inherit that has increased, in addition, a higher percentage of people are likely to receive an inheritance than previously. Less than 40% of people in their 80s (those born in the 1930s) inherited from their parents whereas 55% of people have inherited (or will inherit) from parents born in the 1940s, 61% from parents born in the 1950s, 68% from parents born in the 1960s and 75% from parents born in the 1950s.
The IFS has calculated that there has been a huge increase in the number of households expected to leave an inheritance of £150,000 or more, in 2002–03 only 24% of households anticipated they would leave an inheritance whereas in 2012–13 that figure had jumped to 44% meaning more money than ever before will get passed on.
Conversely, young adults are experiencing a sharp fall in homeownership, a drop in private sector pensions packages and stagnating wages, unsurprisingly this generation will find it harder to accumulate wealth of their own and inherited wealth is likely to play an increasingly significant role in determining their overall wealth, lifestyle and ability to own a home.
In terms of the social and economic impact of current inheritance patterns we know that half of the households with over 80’s hold 90% of the wealth. In addition, those pensioners with the highest incomes during their lifetime are also those who have inherited the most across the course of their lives. They are twice as likely as low-income individuals to have inherited something, and many times more likely to have inherited hundreds of thousands of pounds. The ‘top half’ will inevitably get richer whilst the ‘lower half’ – the 50% holding 10% of the wealth – are likely to get poorer.
Whether or not any changes to Inheritance Tax (IHT) legislation could have an impact upon the ‘lower half’ is unknown, but it may well impact upon the ‘squeezed middle’ as it becomes more generous to families. At present, an individual can pass on up to £325,000 (£650,000 for a couple), without their beneficiaries paying IHT. Above that amount, they pay 40% in tax. However, from April 2017, the government will introduce the Transferable Main Residence Allowance (TMRA), allowing families to pass on more of their property wealth free of IHT.
By 2020, families will be able to pass on £1m of their wealth – including the value of their home – without having to pay any tax.
So maybe think twice about the SKI trip – and invest in some sound inheritance tax planning advice instead.
*Survey by website Gransnet, as reported by The Times