Don’t bank on an inheritance from parents, warns study

Almost half of the UK’s under 40s admit they are relying on inheritance to buy property, boost savings or fund retirement

Don’t bank on an inheritance from parents, warns study

Thousands of Brits could be facing disappointment if they’re expecting an inheritance – as almost one in four parents intend to leave just a small percentage, or even none, of their estate to their children.

The study by Skipton Financial Services, which examined the financial health of 1,000 under 40s and 1,000 over 50s, found that parents wanted their children to ‘stand on their own two feet’ or ‘don’t believe it’s deserved’.

Like his friend and mentor, billionaire investor Warren Buffett, Bill Gates – the second richest person in the world – has publicly stated that the majority of his wealth will be donated to charity rather than left to his children. While he won’t specify what he’s leaving his children, only that it will be a “miniscule” portion of his total wealth, Gates has said he expects his children to find careers and support themselves while making a contribution to society.

Fair share’
More than one in five also said their children have already had their fair share of their inheritance to help towards buying a house, paying off debts or getting through university. But this could come as a blow to almost half of the nations under 40s who admit they are banking on a large inheritance from their parents to get them on the property ladder, boost their savings or fund their retirement, despite less than a quarter ever having a conversation about what they are likely to receive.

Just three quarters of parents intend to leave everything they own to their children. Instead, 14 per cent are planning to leave some of their estate to them, while one in ten admit they won’t be leaving anything.

Of those who aren’t going to transfer everything to their children, 24 per cent want to enjoy the money themselves by going on holidays, buying new cars or just living life to the full in their retirement.

More than one in ten want their children to stand on their own two feet instead of receiving money for nothing, while 12% believe their children have no need for the money so will leave it to their grandchildren or great-grandchildren instead.

Of the 23 per cent who have already handed over all or some of their children’s inheritance, typically by the time their children are 30 and averaging almost £15,000, with more than half doing so to see them enjoy it now rather than when they are gone. Others did so to ease their child’s current financial concerns, while others handed over cash earlier to reduce the potential inheritance tax.

Great expectations
Almost half of Brits under 40 are expecting to receive a large inheritance from their parents, with one in five banking on it to get them onto the housing ladder. And 17% are relying on it because they have no pension set up. Other reasons for banking on an inheritance windfall include not having a well-paid job, to start a family, or even to retire early. More than one in ten simply expects to receive the cash because they believe they are ‘entitled to’ or ‘deserve’ it.

“Traditionally your entire financial wealth and any assets would all be inherited by your children after your death,” says Andrew Barker, managing director of Skipton Financial Services.

“But it seems this is becoming a thing of the past as people want to use the ‘would-be’ inheritance fund to enjoy their own well-earned retirement or even because they feel their children have already had their fair share.

“We are also living longer than ever before, so it’s not realistic for young people to rely on their inheritance to fund their retirement. While 86 per cent think their children deserve an inheritance, it’s entirely possible your parents could still be with you way after you start collecting your pension so they will need their hard-earned money to fund their own life in retirement. But with so many assuming their parents will leave everything to them, there could be a large number of disappointed and financially troubled Brits in years to come.

“The other interesting thing our research found is that there is a perception that inheritance tax doesn’t affect most people so they won’t have to pay it when the time comes. The average property value of those surveyed was almost £270,000 which tallies with the latest house price figures. The threshold limit – the point at which you start paying inheritance tax – is £325,000 for single or divorced people, making a £650,000 allowance for married couples or those in civil partnership. If you’re widowed, it is up to £650,000 depending on how much allowance was used when your partner passed away.

“With the average property price approaching £300,000 and with all other assets like savings and investments to take into account, it is likely that many more people than the one in eight who expect to pay it will be dragged into the inheritance tax trap. Only four per cent correctly stated the £325,000 threshold an individual can have in assets before inheritance tax comes into play with one in four saying they had no idea at what point it was payable.”

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About Author

Shelly Ford

Shelly Ford, assistant editor at Every Investor, has worked as a writer within the banking and insurance sectors for ten years. She has a particular interest in personal finance and retail banking.