Inheritance Tax focus as wealth transfers set to boom

With housing a significant issue in the General Election on June 8, a new report from estate administration specialists Kings Court Trust has forecast that total annual amounts passing from one generation to the next are forecast to rise from the current level of £69 billion to around £115 billion by 2027.

The ‘inheritance economy’ is set to boom over the next 10 years, as rising wealth and higher mortality rates combine to raise the total value of inheritances to £1 trillion over the next decade.

This 66% increase in inter-generational wealth transfers outlined in the ‘Passing on the Pounds’ report – developed in association with the CEBR – is expected to be heavily driven by the rise in property prices over the next 10 years.

Already in the last 20 years, the average house price has risen by 273% and this has increased as the percentage of the average value of household net worth from 39% to 51% in 2015, which are the latest available figures.

Christopher Jones, sales and marketing director of Kings Court Trust, said: “The revelation that inheritances will hit £1 trillion in the next decade is quite astonishing, but makes perfect sense given the amount of accumulated wealth being held by the UK’s older generation.

“Between 2012 and 2014 just over 1m people received an inheritance of more than £1,000 in a given year with around 870,000 receiving cash gifts of more than £500. But over the same period, the average inheritance rose from £43,000 to £54,000, so significant amounts of money are already passing into the hands of the younger generation.

“As mortality rates increase and the concentration of wealth in the hands of the older generations rises, the number of adults receiving higher amounts as an inheritance is also set to rise. By 2047, we could see as much as £335 billion a year passing to the younger generation, which is a staggering amount of money.

“This presents a problem for those passing on their wealth, and for those receiving it. Planning ahead to pass as much of this wealth on as possible without paying more Inheritance Tax than necessary is one thing, but the administrative burden can be equally difficult for those left behind, and independent financial advisors (IFAs) play a vital role in helping families deal with this.”

Taxation and housing are both key issues in the upcoming General Election. Labour has indicated that it will reverse Tory cuts to Inheritance Tax to fund its campaign promises, and aims to build a million new homes over five years.

The Conservatives plan to increase the effective Inheritance Tax threshold to £1m for married couples and civil partnerships, paid for by reducing tax relief on pension contributions for those earning more than £150,000.

The Liberal Democrats would introduce a Housing Investment Bank to generate funding for new homes and would reinstate Housing Benefit for 18 to 21 year olds as part of its mission to end the “national scandal” of homelessness.

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