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The end of the chain

Most parents aspire to leave some of the assets they have accumulated to their offspring, and, as our analysis of HMRC data shows, people are increasingly able to bequeath a property.

This analysis revealed that as many as 73% of probate grants in the 2021-22 tax year contained a property, against 60% in the first decade of the 21st century. This reflects the fact that most of those dying now took their first step onto the ladder after the ending of World War II when home ownership rates were soaring.

The average life expectancy in the UK is 81. About 80% of inheritances come from someone aged over 75. Within limits, the greater the age of the deceased, the more likely they are to leave a property, with as many as 79% of those who die aged between 75 and 84 doing so. However, fewer of those who die aged 85 or more leave a home. This reflects slightly lower home ownership rates among this group, and the requirement to raise funds for care in many cases.

In recent years, around 200,000 homes a year have been passed down to the next generation. When records began between 2000 and 2010, it was 170,000 a year. These homes, which tend almost always to be subsequently sold off, represent the second largest source of properties coming onto the market after homes put up for sale by current owner-occupiers.

No inheritance tax is paid on around 90% of homes that are bequeathed, since most estates fall below the £325,000 inheritance tax threshold. This threshold is £500,000 if a home is left to children.

In the 2021-22 tax year, just over £50 billion-worth of homes were passed on, suggesting an average property value of £250,000; 95% of owners had paid off their mortgage in full prior to their death. The sharp increases in home ownership rates in the 1950s mean that more than 80% of those dying today were homeowners at some stage, although a small number may have sold up before their death.

“The net result is that we may have passed the peak of property inheritance. In years to come fewer people will leave a home behind”

However, we are drawing closer to the point where more of those who pass were born after the boom in home ownership of the postwar years. Some will have bought a home in later life, but they will be far less numerous than the members of the group who become homeowners in early adulthood.

Since 2007, fewer people have bought homes when in their twenties and thirties. But home ownership rates have also fallen among older age groups (apart from those aged 65 and above). Rates have declined by 10% among those in their late fifties and early sixties who are more likely to rent than those of the previous generation. The net result is that we may have passed the peak of property inheritance. In years to come fewer people will leave a home behind. At first, this decline will be relatively slow before an acceleration brought about by the lower home ownership rates among younger Baby- Boomers and the generations that followed.

The consequence of this fall in the total of properties bequeathed will be a drop in the number of people who become owner occupiers thanks to parental property wealth. The youngest Millennials and the members of Generation Z will less and less be able to rely on this subsidy.

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Market Insight Winter 2023

Market Insight Winter 2023
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