UK inheritance to peak in 2047

£1.1 trillion will be left to beneficiaries by 2047, the peak of leaving an inheritance, reveals a new report by HSBC.

The Age of Inheritance Report shows that, based on increasing life expectancy estimates, inheriting wealth is set to peak in 2047, with levels of windfalls after this date falling back significantly. This is compared to just £194 billion in 2015 and halving back down to £552 billion by 2062.

This increasing longevity of the average Briton's life and the associated delay in leaving an inheritance is having a two-fold effect on reducing windfalls for future generations. Firstly, living longer means more wealth will be used to simply meet the cost of living. Secondly, the age at which people receive an inheritance is getting later, and less likely to be in the life stage where it is a priority to accumulate assets and store wealth, such as reducing mortgage debt or long term investing.

The research shows the older you are in receiving an inheritance the more of it you will spend on goods and services which store no value such as holidays and a more luxurious lifestyle.

David Wells, Head of investments, pensions and savings at HSBC comments "The findings of this report serve to highlight the importance of financial planning, both for those who plan to bequeath an inheritance and for those who are likely to be in receipt of one. Wealth needs to be carefully managed so that the value is not eroded before it can be passed down to future generations. Many of us will be reliant on an inheritance to achieve the lifestyle our parents have enjoyed."

Received and expected windfalls vary greatly by age group

Those aged 55 and over have, to date, received the highest proportion of inheritance and also collectively plan to leave the most. However, once this wealth has been passed down, forecasts suggest that the level of inheritance to be received in the UK by future generations is set to fall dramatically, as the value is eroded by the rising cost of living and life expectancy.

Overall, two in five (39%) people have received a windfall in the past, one in four (26%) expects to receive one in future, and half (51%) expect to be able to bequeath an inheritance. The average windfall received to date was worth £45,758, while the average future windfall expected is £88,237. For those who plan to leave an inheritance, the average value of the wealth they plan to pass down is £207,449.

Growing expectations of future windfalls from parents and property

There are growing expectations of both receiving an inheritance from parents and also the gains to be made from property. While just 32% of those who have received a windfall have inherited from their parents in the past, the expectation of receiving an inheritance from parents in the future has doubled, rising to more than three quarters (77%) of all adults who expect a future windfall.

Indeed, property's role in windfalls to date has been relatively modest with just 14% of people who have received a windfall having inherited property.  However, there are high expectations for future property inheritance; almost half of adults who expect a windfall (47%) expect to inherit from property in the future. This is largely due to the property boom from the mid-1990s to 2007, meaning many potential beneficiaries feel that they will gain from the profits their parents have made from bricks and mortar.

Generational divide on spending or saving an inheritance

The majority of people who receive a windfall will invest it, put it towards family savings goals or simply use it to help pay for everyday essential living costs and pay down existing debt. However, more than half (57%) would also use a windfall to fund luxuries such as going on the holiday of a lifetime.

There is a clear trend demonstrating a generational divide in the usage of windfalls. Older inheritees are more likely to spend their wealth on travel, luxuries and the rising cost of living or care fees as they live longer than any generation before them. By comparison, the younger generations are more likely to invest their windfalls or put it towards items that store wealth, such as property.

Top 10 uses for a windfall

1. Spend on essentials (34%)
2. A holiday or travel experience of a lifetime (34%)
3. Invest in a pension/long term savings (30%)
4. Buy / put the money towards a property (29%)
5. Pay off some/all of my existing mortgage (28%)
6. Spend on luxuries (23%)
7. Put aside for family events / needs (such as a wedding, first car) (23%)
8. Short term investment (12%)
9. Tuition fees (such as school fees or university) (10%)
10. Care fees (4%)