Intergenerational wealth transfers drive inequality in Britain

Over one-third of British households report receiving a wealth transfer in the form of an inheritance or substantial gift from their parents at some point, according to new Nuffield-funded research from the Institute for New Economic Thinking at the University of Oxford.

This is similar to some other rich countries such as France, Germany and Italy but much higher than the US.

The team also found that those with a university-level education receive substantially more in transfers than those with lower levels of education, particularly in Britain. These intergenerational transfers are associated with markedly higher wealth for the households receiving them, and represent one important channel through which advantage is transmitted across generations.

Wealth inequality is central to current debates about inequality and fairness in Britain and across rich countries. This study is the first to contrast patterns of intergenerational wealth transmission and its impact on wealth inequality in Britain with other rich countries and learn from that comparison.

The team used the Wealth and Assets Survey for Britain and campared the data with wealth surveys for France, Germany, Ireland, Italy, Spain and the US. A relatively high proportion of those under 35 reported receiving some inheritence in Britain but the amounts were low so only about 5% of the total wealth transferred went to them, compared with 40% for those aged 65 or older. Those in the top quarter of the wealth distribution had received two-thirds of the total wealth transferred compared with 15% going to the bottom quarter – though about one-third of those at the very top of the wealth distribution had not received any wealth directly from their parents.

Tax implications of international wealth transfers

This has implications for reforming taxation of inheritance and intergenerational gifts. These taxes currently account for less than 1% of tax revenue in the UK, down from 2.5% in the 1960s, and their structures vary markedly across rich countries. The merits of a fundamental structural shift to a lifetime capital acquisitions tax should be taken seriously, as one element in the broader debate about wealth taxation now coming to the fore in the UK and other rich countries.