Quarter of young adults will inherit more than they earn over 40 years

Young adults who are not in line to inherit money from the Bank of Mum and Dad may never catch up with contemporaries lucky enough to receive a legacy – even after a lifetime of working.

A quarter of young workers can now expect to inherit more money than they will earn over an entire 40-year career, according to new analysis.

‘It is, of course, good news for some,’ said Richard Dana, co-founder of mortgage broker Tembo, which is behind the research. ‘But it is also pretty disheartening for so many people to realise that no matter how hard they work, inheritance is going to be such a large and growing part of overall lifetime income.’

Thomas Wernham, an economist at the Institute for Fiscal Studies, said: ‘People increasingly rely on inheritances to get wealthier, leaving those with little or nothing to inherit unable to save enough of their own earnings to keep up.’

An estimated £5.5 trillion will be passed on from asset-rich parents to their children in legacies and gifts over the next 30 years.

Members of Generation Z and Millennials – those aged 18 to 24 and 25 to 39 respectively – will be the biggest beneficiaries.

Many of them will inherit from their property-owning baby-boomer parents who are now in their late 50s, 60s and early 70s.

In one of the biggest transfers of wealth in history, more than three million people in the UK with parents aged over 65 today stand to receive an inheritance of more than £1 million each in the next three decades.

That compares to just one million people 15 years ago.

It means one in four young adults are set to inherit more than the average lifetime earnings of £1.1 million.

The flipside is that people who do not come into a large legacy will find it harder than ever to become a self-made success.

Economists warn that the rise of the so-called ‘inheritance economy’ – which has been fuelled largely by soaring property prices over the past two decades – risks widening inequality as people from less well-off families trail further behind. 

It may also lead to worsening social mobility and a wider North-South divide. ‘Booming house prices and growth in other assets have enriched the already wealthy over recent decades,’ Mr Wernham said.

He added that rising property prices and weak growth in wages put young people who don’t inherit at a bigger disadvantage in accumulating their own wealth.

‘This is a significant risk to social mobility,’ he said.

Real wages – pay adjusted for inflation – are now falling at their fastest rate since records began in 2001, according to the Office for National Statistics.

‘It’s becoming increasingly difficult to earn your way to become rich,’ said Molly Broome of the Resolution Foundation think-tank.

If you are worried that you be hit by tax on death, read our guide: Ten ways to legally avoid inheritance tax.

Privilege or a reward for mum and dad’s thrift? That’s the question on everyone’s lips, says JEFF PRESTRIDGE 

This intriguing research, quantifying the value of the future transfer of wealth from parents to children, raises serious social issues.

The fact that £5.5 trillion of wealth – a mammoth sum of money – is expected to be passed down over the next 30 years exposes the gaping divide between the haves and have-nots.

The big winners will be members of Generation Z (those currently aged 18 to 24) and millennials (25- to 39-year-olds).

Three million people are anticipated to receive inheritances worth more than £1 million – most from parents living in London and the South East.

And, most astonishingly, one in four will get more in inherited wealth from their parents than they will earn throughout their working life.

Of course, the figures are based on assumptions, not facts.

Nobody knows what the future holds for house prices and employment prospects.

Indeed, considering that property is the major component behind such a massive transfer of wealth, should house prices crash, it will eat away at the £5.5 trillion figure.

Similarly, wages could boom for younger workers if the economy enjoys an extended period of sustained growth.

Certainly, what is intriguing about the prediction is what it tells us about Britain today.

For example, many baby-boomers are sitting pretty despite the current economic ills.

They have near bullet-proof pensions and homes that double up as financial fortresses.

However, a huge number of younger people face an uncertain financial future.

Whether in the short term (for example, help in buying a home) or long term, they are dependent upon the Bank of Mum and Dad.

The Conservatives will claim that this research vindicates Margaret Thatcher’s policies to turn the country into a nation of homeowners.

But Labour will say it justifies higher inheritance taxes on fairness grounds.

Despite the inheritance tax threshold having been frozen at £325,000 since 2009, the haul from the tax is at a record level – with receipts between last April and December totalling £5.3 billion.

Meanwhile, the debate on how inheritances should be taxed will continue to rage.

While some believe inherited wealth is a socially unfair dividend of privilege, others regard it as a prime example of families’ financial prudence.

What they all agree, though, is that it provides a very rich vein of revenue for some.

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