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Young adults who are not eligible to inherit money from the Bank of Mum and Dad may never catch up with their contemporaries who are lucky enough to receive an inheritance – even after a lifetime of work.
A quarter of young workers can now expect to inherit more money than they will make in an entire 40-year career, according to new analysis.
“For some it is of course good news,” says Richard Dana, co-founder of mortgage broker Tembo, who is behind the research. “But it’s also quite disheartening for so many people to realize that no matter how hard they work, inheritance will be such a large and growing portion of total life income.”
Thomas Wernham, an economist at the Institute for Fiscal Studies, said: ‘People increasingly rely on inheritances to get richer, leaving those who have little or nothing to inherit unable to save enough of their own income to get by. come.’
Over the next 30 years, an estimated £5.5 trillion will be passed from wealthy parents to their children in the form of legacies and gifts.
A quarter of young workers can now expect to inherit more money than they will make in an entire 40-year career, according to new analysis
Generation Z members and millennials — ages 18 to 24 and ages 25 to 39, respectively — will be the biggest beneficiaries.
Many of them will inherit from their baby boomer parents who are now in their late fifties, sixties and early seventies.
In one of the largest transfers of wealth in history, more than three million people in the UK with parents over the age of 65 will each receive an inheritance of more than £1 million over the next three decades.
That compares to just a million people 15 years ago.
It means one in four young adults will inherit more than the average lifetime income of £1.1 million.
The flip side is that people who don’t get into a big legacy will find it harder than ever to become a self-made success.
Economists warn that the rise of the so-called “inheritance economy” – fueled largely by rising real estate prices over the past two decades – threatens to exacerbate inequality as people from less affluent families fall further behind.
It can also lead to a deterioration in social mobility and a wider gap between North and South. Booming house prices and growth in other assets have enriched the already wealthy in recent decades, Mr Wernham said.
He added that rising real estate prices and weak wage growth put young people who don’t inherit at a greater disadvantage in accumulating their own wealth.
“This is a significant risk to social mobility,” he said.
Real wages — wages adjusted for inflation — are now falling at their fastest rate since records began in 2001, according to the Office for National Statistics.
“It’s getting harder and harder to make money to get rich,” says Molly Broome of the Resolution Foundation think tank.
If you’re worried about being tax hit on your death, read our guide: Ten Ways to Legally Avoid Inheritance Tax.
Privilege or reward for mom and dad’s frugality? That’s the question on everyone’s lips, says JEFF PRESTRIDGE
This intriguing study, which quantifies the value of the future transfer of wealth from parents to children, raises serious social questions.
The fact that £5.5 trillion in wealth – a gargantuan sum of money – is expected to be passed on over the next 30 years exposes the yawning gulf between the haves and have-nots.
The big winners are members of Generation Z (those who are currently between the ages of 18 and 24) and millennials (25 to 39 year olds).
The big winners are members of Generation Z (those who are currently between the ages of 18 and 24) and millennials (25 to 39 year olds).
Three million people are expected to receive legacies worth more than £1 million – most from parents living in London and the South East.
And, most astonishingly, one in four will receive more inherited wealth from their parents than they will earn in their entire working life.
Of course, the figures are based on assumptions, not facts.
No one knows what the future holds for house prices and employment prospects.
Given that real estate is the main component behind such a massive transfer of wealth, if house prices were to crash it would eat away at the £5.5 trillion figure.
Similarly, wages for younger workers could boom if the economy experiences an extended period of sustained growth.
What’s intriguing about the forecast is what it tells us about Britain today.
This is how many baby boomers are sitting nicely despite the current economic malaise.
They have nearly bulletproof pensions and homes that double as financial fortresses.
However, a large number of young people face an uncertain financial future.
Whether it’s short term (eg help buying a house) or long term, they depend on the Bank van Papa en Mama.
The Conservatives will argue that this research justifies Margaret Thatcher’s policy of making the country a nation of homeowners.
But Labor will say it justifies higher estate taxes on grounds of fairness.
Despite the estate tax threshold being frozen at £325,000 since 2009, revenue from the tax is at an all-time high – with receipts between last April and December totaling £5.3bn.
Meanwhile, the debate over how to tax inheritances will continue to rage.
While some believe that inherited wealth is a socially unfair dividend of privilege, others view it as a prime example of family financial prudence.
However, what they all agree on is that it provides a very rich source of income for some.
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