New research suggests that the total annual amounts passing from one generation to the next will rise from the current level of GBP69 billion to GBP115 billion by 2027.
The research was conducted by the Centre for Economics and Business Research (CEBR) for estate administration firm Kings Court Trust.
It indicates that the average value of inheritances will jump by 47 per cent from GBP62,000 to GBP91,000 by 2027, driven by the rise in property prices over the next ten years.
Another factor may be ageing population profiling, resulting in an increasing number of deaths. Office of National Statistics (ONS) population projections show a 7 per cent increase in the number of deaths in the UK between 2017 and 2027, from 566,000 to about 606,000 per year.
The rise of wealth in the UK in recent decades has been phenomenal, says the CEBR report, Passing on the Pounds. According to ONS data, the total net worth of UK households increased by a factor of 3.6: from GBP2.8 trillion to GBP10.2 trillion between 1995 and 2015 – even taking into account the 2008 financial crisis.
The long housing boom, which has resulted in increasing unaffordability of residential property, has contributed to a situation in which home ownership has declined sharply for those under the age of 35, while ownership rates have risen slightly for over 65s. A rising proportion of the UK's housing wealth is therefore concentrated in the hands of older age groups, and the life chances of younger people are being strongly influenced by their prospects of an inheritance from their elders.
The cumulative value of these inheritances over the next decade will reach GBP1 trillion, says the report. According to Kings Court Trust, the 'inheritance economy' created by this boom offers an opportunity for independent financial advisors, but not all of them are prepared for it.
Illiquid property wealth is set to be sold off on an enormous scale, says Kings Court Trust. This increases the stock of cash that could be invested and the number of individuals needing investment advice. This shift from property wealth to financial wealth could significantly increase the amount of funds under management by financial advisors.
On the other hand, says Kings Court, financial advisors have to work out how to continue to manage wealth on their client's behalf as it is dispersed from one generation to another over time. They could lose millions of pounds of assets under their management if heirs and gift recipients do not ultimately become clients.
Centre for Economics and Business Research
This article incorporates material originally published by STEP in their UK News Digest of 11 May 2017 and is reproduced with their permission. To view STEP news items please click here.
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