Property prices fuel inheritances

Joyce and Sybil Burden will have to pay inheritance tax on their home

More than a million adults a year in the UK are inheriting money from their relatives, new research has revealed.

The average sum inherited rose from £21,000 in 1997-98 to £44,000 in 2003-04, said the International Longevity Centre (ILC).

The think tank said the rise was clearly being fuelled by rising property values.

It said much of the money was then being recycled into property, helping to push up prices in recent years.

"This is the first research to take a long-term view of the inheritances people are receiving," said one of the report's authors, James Lloyd.

"We didn't expect the value of inheritances to increase at such a fast rate, doubling in six years, and it is undoubtedly a result of property," he added.

The issue of inheritance, and how it should be taxed, was highlighted recently when the two Burden sisters from Wiltshire failed in their long-running legal challenge to avoid inheritance tax on their jointly-owned house.

Older and wealthier

The ILC's main findings were that each year, about 2.5% of the population aged over 16 received an inheritance, which suggests that in 2006 in the UK, 1,211,740 people were given some money by dead relatives.

Much property wealth is recycled, helping to push up prices James Lloyd, ILC

Also, inheritances were more likely to be received by older people, and their inheritances were likely to be of larger value.

People in higher socio-economic groups were also more likely to be bequeathed some money.

According to the study, entitled The Age of Inheritance, the chances of receiving any money in any particular year was the same for each age group examined.

But the sums involved varied a lot.

Those aged 16-20 received £10,000 on average, and that figure did not change between 1998 and 2004.

However, the older groups, those aged 30-49 and also those aged 50+, saw a big rise in the value of their inheritances between 1998 and 2004.

The value of the money rose from £17,0000 to £31,000 for the 30 to 49-year-olds, while the over-50s saw their inheritances shoot up from £30,000 to £60,000.

Meanwhile, over any two-year period, about 6% of people in professional and managerial jobs received some money.

This compared with 4% of those classified as skilled non-manual or skilled manual workers, and just 3% of the semi-skilled and unskilled.

Re-cycling

The researchers argued that inheritances, as well as being caused by rising property prices, had also helped fuel the house price boom of the past decade, because much of the money had been re-cycled in fresh property purchases.

"Much property wealth is recycled, helping to push up prices," said James Lloyd.

And he argued this had had a significant knock-on effect on other people who had not inherited any wealth.

"One reason people are not putting enough into pension savings is that they are having to put all their savings into buying a house," he said.

The ILC, whose work was financed by the Norwich Union, looked at data taken from two long-running population samples.

The first was the British Household Panel Survey, which has followed the lives of 10,000 people in Britain since 1991.

The other was the English Longitudinal Study of Ageing which, since 2002, has been studying 10,000 people aged over 50 in England.