RECENT TRENDS IN THE SIZE AND THE
DISTRIBUTION OF INHERITED WEALTH
IN THE UK
ELENI KARAGIANNAKI
IFS/PUBLIC ECONOMICS UK CONFERENCE
BANK OF ENGLAND
9TH MARCH 2015
Background
• Rising importance of wealth: In the UK the ratio of personal wealth to
national income increased from less than 3 to 1 in the late 1970s to more
than 5 to 1 in 2010
• Main driver of the increase in personal wealth in the UK was the rise in
housing wealth, which itself was driven by the rise in house prices and the
growth in post-war owner occupation
• The rising importance of wealth has stimulated discussions about the extent
to which this led (or will lead in the future) to an increase in the importance
of inheritance and the implications that this may have on wealth
accumulation and wealth inequality
Aim
• Document and analyse trends in the size and the distribution of inheritances
from 1984 to 2010 using HMRC estate statistics and data from four microsurveys (focusing mainly on intergenerational inheritance)
• Atkinson (2013) provides evidence on changes in the size of
inheritances from 1896 onwards
HMRC estate statistics
• Based on Inheritance Tax records, provides information on:
•
•
•
Total number and value of estates passing on death 1984/85-2009/10
Number of estates that include housing assets and the value of housing
within estates
Number of estates that include financial assets and the value of financial
assets within estates
• Limitations of HMRC data
• Excludes small estates consisting of cash and personal effects or estates
where the sum less than £5,000
• Excludes estates in discretionary trusts
• Excludes jointly owned property passing on death to surviving spouse
• Undervaluation bias (Atkinson 2013)
Survey data
AIS (2004)
GHS 1995/96
Recorded
Information
Period
covered
Limitations
All inheritances received by respondents by
2004 (up to three inheritances)
Non-spousal inheritances over £1,000
received by respondents in the last 10 years
Lifetime -2004
- Inheritance values in bands
- Recall error bias
- £1,000 nominal threshold
would exclude a larger % of
inheritance in earlier periods
- Recall error bias
1985-1996
BHPS
(waves 7-16)
Inheritance received in the year prior the
survey
1996-2005
Attrition bias
WAS 2008/2010
(wave 2)
Inheritances over £1,000 received the last two
year (wave 2)
2006-2010
Attrition bias
In all surveys we exclude inter-spousal inheritance and express
inheritances in 2005 prices (except from WAS)
HMRC statistics on the total number of estates and the number of
estates with particular kind of assets1984/85-2009/10, millions
350
300
250
200
All assets
Financial assets
150
Housing assets
100
50
0
1984/85
1987/88
1990/91
1993/94
1996/97
1999/00
2005/06
2009/10
HMRC statistics on the total value of assets within estates 1984/852009/10, £ billions 2005 prices
70
60
55.4
50
40
All assets
Financial assets
30
28.9
22.2
20
10
9.8
0
1984/85
1987/88
1990/91
1993/94
1996/97
1999/00
2005/06
2009/10
Housing assets
Total value of estates excluding inter-spousal transfers 1986/87-2009/10
(billion £, 2005 prices)
45
38.6
40
35
30
25
20
15
10
5
0
18.3
Summary of evidence based on survey data
•
Consistently with HMRC statistics, evidence based on survey data
suggests that the percentage of the population that received an
inheritance remained fairly stable during 1985-2010
•
Comparisons of the GHS and BHPS statistics, which allow
comparisons of inheritances over £2,000 (in 2005 prices) suggest that
there has been an increase in the percentage of population who had
received an inheritance over the £2,000 cut-off
•
Despite large differences in the average value of inheritance
estimates across surveys, the patterns of change of the estimates
within each survey, similar to those implied by HMRC
Summary of evidence based on survey data
•
The WAS estimates capture pretty well the HMRC estimates: For the
period 2006-2010 the WAS estimates imply an average annual flow of
inheritance of around £35 billion. For the same time period the HMRC
statistics imply an average annual flow of non-spousal inheritance of
around £37 billion (excluding expenses and inheritance tax), which is
6 percent higher than the WAS estimates
•
The BHPS estimates for the preceding 5-year time period (20012005) imply an average annual flow of inheritance of around £30.6
billion compared to £36 billion implied by the HMRC estimates
THE DISTRIBUTION OF INHERITANCE AND ITS CHANGES
OVER TIME
Per cent and the mean and median values of inheritances
Inheritors
Mean
Median
43.9
19.5
42,100
35,000
9,400
7,600
8.4
12.5
35,100
47,800
16,000
16,800
% inheriting
I>0
AIS (all inheritance up to 2004)
BHPS (1996-2005)
I>£1,000 (nominal)
WAS in any 2-years between
2006-2010
I>£2,000 (in 2005 prices)
GHS (1985-1996)
BHPS (1996-2005)
3.6
41,700
9,500
Gini and inheritance concentration measures in different surveys
I>0
AIS (all inheritances up
to 2004)
BHPS (1996-2005)
I>£1,000
WAS (2006-2010)
I>£2,000
GHS (1985-1996)
BHPS (1996-2005)
All respondents
Gini
Gini
0.90
0.75
62
42
12
0.96
0.74
58
40
14
-
0.74
58
41
18
0.97
0.96
0.62
0.66
44
50
29
34
11
12
Gini coefficient of net worth according to WAS in 2006-2008
was 0.61.
Inheritors
Inheritance shares
10%
5%
1%
The top 1, 5 and 10% wealth shares according to WAS
are 13, 30 and 44 per cent respectively
Concluding remarks
•
Both the HMRC estate statistics and survey evidence suggest that
over 1985-2010 there has been a substantial increase in the value of
inheritance
•
According to the HMRC statistics, the main driver of this increase was
the increase in housing inheritance and to a lesser extent the rise in
financial inheritance
•
The rise in housing inheritance was driven by the rise in house prices
and to a lesser extent in the number of housing inheritance
Concluding remarks
•
According to all surveys, the distribution of inheritance is highly
unequal (much more than wealth)
•
Over time comparisons suggests that while the distribution of larger
inheritance amongst recipients became more unequal, the inequalityincreasing effect from the greater dispersion of inheritance was
counterbalanced by the increase in the percentage of the population
that received inheritances
•
The Wealth and Assets Survey appears to be capturing both the
overall scale and more importantly the concentration of inheritances
much better than any other data source