Parents secretly plan to leave a bigger inheritance than children expect

by

Parents secretly plan to leave a FAR bigger inheritance to their children than they expect is in store and just one in five families discuss plans

  • People anticipate an inheritance of £78,000 on average from their parents
  • Parents say they intend to pass on £124,000 on average 
  • Just a fifth of UK adults discuss inheritance within their family 

By Tanya Jefferies for Thisismoney.co.uk

Published: | Updated:

Parents are sitting on much more wealth than they admit to their children, who greatly underestimate what they might inherit.

People anticipate an inheritance of £78,000 on average from their parents, much less than the £124,000 they are likely to receive.

The average sums parents intend to bequeath are far bigger among older age groups, according the research by wealth manager Charles Stanley.

Inheritance: People expect to receive £78,000 on average from their parents

Some parents might be over-estimating their wealth too, as recent government statistics show the average inheritance is £11,000, but among those aged 55-64 it is £33,000 and among over-65s it is £20,000.

The house price boom over the past few decades means later generations could be in a position to pass on bigger amounts than those above when they die, but care bills may also deplete their assets more than they realise now.

Separate research has shown many people are ‘gambling’ on coming into a big inheritance to fund themselves in retirement, despite the risk it might materialise late or never, or be smaller than they hope. 

The Charles Stanley research also found that just a fifth of UK adults discuss inheritance within their family, which means makes them more likely to get landed with bigger inheritance tax bills (see the box below).

Meanwhile, 29 per cent have already or believe they will receive some of their inheritance early, a figure which could rise as many households are suffering financially during the Covid-19 crisis and could require extra support.

Charles Stanley surveyed just over 2,000 adults in February and found:

– People aged 54-74  expect to leave £174,000 on average to their children, and those aged 75-plus £275,000

– Some 17 per cent of people don’t know if they will inherit anything at all

– But 14 per cent are relying on receiving an inheritance and have already mentally ‘spent’ it

– After receiving an inheritance, 26 per cent will put it in a savings account, 18 per cent will pay off debts, 17 per cent will use it to fund retirement, 17 per cent to get shot of a mortgage and 12 per cent to buy a home.

Alex Price, director of financial planning at the firm, says: ‘Adults across the UK are in line for an unexpected inheritance windfall, as a significant gap is revealed between expectations and the amount that is due to head their way.

‘When significant sums of money are involved, it’s important to speak to your loved ones about your intentions and your wishes early, and not doing so can come at a price.

‘In addition to potentially reducing inheritance tax bills and helping families build wealth into their long-term planning, talking now could see many families passing down wealth early.’

How does inheritance tax work?

If you are in line for a big inheritance, you might also have to factor in a sizeable tax bill.

Inheritance tax was originally designed as a levy on the very wealthy, but triple digit property inflation since the 1980s has dragged more ordinary families living in expensive areas into its net.

Just 5 per cent of people leave estates sufficiently large to make their beneficiaries liable for inheritance tax.

However, the property boom of recent decades means that figure is expected to rise, with those inheriting in house price hotspots bearing the biggest financial burden.

Essentially, you need to be worth £325,000 if you are single, or £650,000 jointly if you are married or in a civil partnership, for your loved ones to have to stump up death duties.

But a new own home allowance – known as the residence nil rate band – lets you pass on more than that.

If you have a partner, own a property, and intend to leave money to your direct descendants, the threshold is now a joint £1million. 

If you are worth more than this, your heirs will have to hand over 40 per cent of your assets above those levels to the Government.

10 ways to avoid inheritance tax: Read more here.  

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.