How much inheritance could be coming in the 'Great Wealth Transfer’?

I went on a walk the other day through a neighbourhood of red brick Victorian homes. Each was accompanied by a neatly kept garden and an impossibly shiny car, many embossed with a little horse. I looked up the property values in the neighbourhood and promptly started to wish for an inheritance from some long-lost great aunt.

My Downton Abbey dream is yet to come to fruition. But a lucky group do seem poised to inherit a big sum: Standard Life estimates that over £5 trillion will be passed down to Brits in the next 30 years in what is being called ‘The Great Wealth Transfer’.

A large portion of that money will be held by the few. But plenty of people have an inkling that they could receive some amount of inheritance, or plan to pass some down, even if the sum involved has a few less zeroes on the end. The issue is, it’s hard to tell how much that will really be. A study by Aviva found that 60% of those expecting an inheritance don’t know how much they would be getting.

Not even those who plan to pass on an inheritance can always know for sure. If they wait until death to pass on wealth, a big chunk could be eaten up by the 40% inheritance tax rate. Give away the money too soon, and they could find themselves coming up short on expenses in their final years of life, where costs around long-term care can skyrocket.

Why is there so much news about ‘The Great Wealth Transfer’?

There will always be some flow of wealth from older generations to younger, but what stands out about now is that amount of money is expected to increase quite dramatically. The Institute for Fiscal Studies estimates the median inheritance for those born in the 1980s is expected to be around £136,000, compared with £107,000 for those born in the 1970s and £66,000 for those born in the 1960s.

While everyone’s situation is different, the generation in retirement now have in general been able to accumulate a larger amount of wealth than those who came before them thanks to property market booms and a strong period for the stock market.

When do most people receive an inheritance?

There is a bit of irony to inheritance, because it statistically comes when people need it least. Most people receive their largest inheritance from their parents, but as people live longer, the age where that money is passed down also goes up. For example, those born in the 60s on average had their last remain parent die when they are age 58, according to IFS, while those born in the 80s had their last remaining parent die when they were age 64.

For most of us, this is a very good thing as it means more time with the people we love most. But many people have the idea that inheritance will be able to help them with the purchase of a family home or their children’s school fees, when in fact it will likely not arrive until retirement age.

Gifting instead of inheritance

In the UK, if assets are given to someone else at least seven years before the death of the gifter, they cannot be subject to inheritance tax. For this reason, people might choose to pass down some of their wealth earlier in life, to avoid some of it going to inheritance tax instead of their intended beneficiaries.

This can be helpful for those inheriting the money as well, as it may mean it is passed down at a time of life where it can make a more significant difference. For example, parents may decide to help their child put a downpayment on a first home. The issue with this for the person passing down money is the need to balance retaining enough to fund the retirement they desire while minimising inheritance tax by not waiting too long. Remember that costs like end-of-life care can dramatically increase spending in later years.

Most people will be able to pass on money without facing any inheritance tax. There is an inheritance tax allowance of £325,000 per person. If you are married or in a civil partnership, you can inherit your spouse’s assets free of tax and have your own tax band expanded to include whatever portion of their inheritance tax allowance they did not use. There can also be allowance for additional assets like your home. However, there is a growing proportion of people who are subject to inheritance tax, and this is likely to increase as pensions become subject to inheritance tax in April 2027.

How to prepare for inheritance

Bringing up a possible inheritance can feel quite awkward. But if you are in the position of wanting to pass down part of your wealth, it can make sense to have the conversation now, so your loved ones have a better idea of what to expect down the line. If you are considering gifting money earlier on, it might also be a helpful way to get an idea of what their goals are, so you are able to help them more effectively. Keeping an up-to-date will is essential to ensuring the money is distributed in the way you would like after your death.

If you think an inheritance may be coming your way, it’s not a good reason to stop saving and investing for yourself. It’s impossible to know when you might inherit, or how much money could be waiting for you. Inheritance doesn’t always go as expected: there can be delays in receiving the money, more tax than anticipated, or confusion around who it is passed to. In addition, some of the most common assets that are inherited, like homes, can come with their own challenges and expenses before they are of value.

Developing your own healthy saving and investing habits will help ensure you are not reliant on others and support your financial independence, allowing you to make the next steps in life on your own timeline.