What drives the timing of inter-vivos transfers?

Boileau, Bee; Sturrock, David

doi:10.1920/wp.ifs.2023.0923

Cited by 5 publications

(10 citation statements)

References 14 publications

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“…The idea that those with wealthy parents are able to get on to the housing ladder more easily and that this is to their financial advantage is prevalent in popular debates. Boileau and Sturrock (2023b) find that in the period 2018-20, the overwhelming majority of significant financial gifts were made from parents to children and that more than half of the value of gifts transferred were reported as being used for home purchase and improvement. The relationship between transfers received and movements into homeownership was found to be particularly strong for those with higher SES parents.…”

Section: New Directions: the Role Of Wealth Transfers And Returns To ...mentioning

confidence: 99%

Intergenerational mobility in the UK

van der Erve,

Krutikova,

Macmillan

et al. 2023

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National estimates of intergenerational earnings mobility Previous work has shown that intergenerational income mobility in England was lower for those born in 1970 than those born in 1958. Using administrative data on the most recent birth cohorts for whom earnings data are available, we find no evidence of recovery from that decline. National estimates of mobility of cohorts born in the late 1980s looks very similar to those of the 1970 cohort and education inequalities continue to be the dominant mediator. However, these estimates paint an incomplete picture for two reasons.Differences in income mobility across areas and across ethnic groups  First, there is a significant amount of heterogeneity in income mobility within England. We find important differences in mobility rates across different neighbourhoods and different ethnic groups for young people from disadvantaged backgrounds. Due to data limitations, our analysis is restricted to studying upward mobility among individuals who grew up in disadvantaged households. For men, the difference between the least and most mobile groups (Black Caribbean and Indian, respectively) is around 15 percentiles -equivalent to £8,000 or 54% of mean earnings at age 28 for men who were eligible for free school meals (FSM) in these cohorts -while between the most and least mobile Local Authorities (LAs; Nottingham in East Midlands and Havering in London), it is 17 percentiles. The difference between White and Indian women (the least and most mobile ethnic groups, respectively) is also 17 percentiles (equivalent to just over 82% of mean earnings at age 28 for FSM women in these cohorts); this is also the gap between Kingston upon Hull in Yorkshire and Redbridge in London, which are the least and most mobile LAs for women.The growing importance of 'unearned' sources of income  Second, existing research on intergenerational mobility has tended to focus on income from earnings. We find that 'unearned' sources of income, here meaning returns to wealth and wealth transfers received, look to be an important driver of the persistence across generations in total lifetime income (i.e. the sum of earnings and returns to wealth and wealth transfers received). These 'unearned' sources of income are likely to be of growing importance over time. van der Erve, L. et al. (2023), 'Intergenerational mobility in the UK', IFS Deaton Review of Inequalities 2 © Institute for Fiscal Studies, September 2023 Finally, there is significant room to improve data and methods for integrating more sophisticated measures of lifetime income that account for important unearned components.van der Erve, L. et al. (2023), 'Intergenerational mobility in the UK', IFS Deaton Review of Inequalities 3

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Section: New Directions: the Role Of Wealth Transfers And Returns To ...mentioning

confidence: 99%

Intergenerational mobility in the UK

van der Erve,

Krutikova,

Macmillan

et al. 2023

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“…Second, gifts may respond to the needs of the receiver to a greater extent than inheritances and so discouraging them may be more costly. However, the extent to which bequests are left intentionally or unintentionally is hard to estimate -using whether or not they are made at death is a rather crude proxy -and large gifts do not appear to respond substantially to receivers' financial circumstances (Boileau and Sturrock, 2023b;Groot, Möhlmann and Sturrock, 2022). There is therefore a strong case in practice for preventing lifetime gifts from being used for inheritance tax avoidance by including them within estates (or taxing them when made).…”

Section: The Treatment Of Transfers Made At Different Points In Timementioning

confidence: 99%

“…However, there is evidence that on the death of the first spouse, surviving partners increase their giving, particularly if they are a woman (Boileau and Sturrock, 2023b). These gifts may be made free of inheritance tax: small gifts, gifts relating to weddings and regular gifts are all free of inheritance tax.…”

Section: Spouse Exemptionmentioning

confidence: 99%

“…Wealth transfers made while alive tend to be smaller than inheritances, but are received earlier in life: typically when people are in their twenties and thirties (Boileau and Sturrock, 2023a). These have been shown to interact with choices that could have knock-on impacts on income or wealth accumulation, such as home purchase (Boileau and Sturrock, 2023b). More widely, while inherited wealth is becoming more important, differences in early-life environment, education and parental influences on careers, which in turn shape people's earnings, are still expected to be the dominant source of differences in lifetime economic resources between those with richer and poorer parents.…”

Section: Effects On Social Mobilitymentioning

confidence: 99%

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Reforming inheritance tax

Advani,

Sturrock

2023

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1. Inherited wealth is growing -and set to continue to grow -compared with earned incomes, and it will have a growing impact on inequalities by parental background. While inheritances will remain small for those with the least wealthy fifth of parents, for those with the wealthiest fifth of parents they are set to rise from averaging 17% of lifetime income for those born in the 1960s, to averaging 30% of lifetime income for those born in the 1980s. If the annual flow of non-spousal inheritances next year was equally shared across those aged 25, this would imply each receiving around £120,000. Exemption thresholds, which allow many couples to pass on up to £1 milliontax-free, mean that the share of deaths resulting in inheritance tax is small, at around 4% in 2020-21, but a larger and growing proportion are potentially affected by the tax. The proportion of deaths resulting in inheritance tax is set to grow to over 7% by 2032-33. The number of people affected by inheritance tax will be still larger. By 2032-33, one in eight people (12%) will have inheritance tax due either on their death or their spouse or civil partner's death. 3.Inheritance tax revenues are small, at £7 billion (or 0.3% of GDP) a year. However, we forecast that by 2032-33 they will rise to just over £15 billion in today's prices (0.5% of GDP), driven by increasing levels of wealth held by subsequent generations of retirees. It is of growing importance that this tax is well designed.1 Advani acknowledges funding from his Nuffield 'Broad Shoulders' grant (WEL/FR-000023787) and a grant from the Economic and Social Research Council (ES/W012650/1). Sturrock acknowledges funding from an ESRC grant (ES/V001248/1). Both authors thank Stuart Adam and Emma Chamberlain for comments.10. Increasing the nil-rate band to hold the share of deaths resulting in inheritance tax down at its long-run average of 4% would require a nil-rate band of £380,000 and cost around £900 million a year. The cost of limiting the scope of the inheritance tax system in this way would grow over time, reaching £2.7 billion by 2032-33. 11. There are other changes to taxation at death that would improve efficiency and fairness, and raise revenue. Levying capital gains tax at the point of death would raise around £1.6 billion a year. Levying income tax on withdrawals from inherited pension pots regardless of the age at which the giver passed away would also raise further revenue.12. Inheritance tax as currently designed has only a small impact on the distribution of inheritances received and therefore on intergenerational wealth mobility. The wealthiest fifth of donors will bequeath an average of around £380,000 per child, and pay inheritance tax of around 10% of this amount. By contrast, the least wealthy fifth of parents will leave less than £2,000 per child. To have a larger impact on intergenerational mobility, inheritance tax would have to be substantially expanded in scope.13. By the time inheritances are received, wealth inequality is already substantial.Inheritances are most ...

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“…Importantly, evidence suggests individuals from the most advantaged backgrounds tend to deplete inheritances at a slower rate, and in long run even in relatively egalitarian societies such as Sweden inheritances tend to increase wealth inequality (Nekoei & Seim, 2023). Boileau and Sturrock (2023) using WAS instead focus on inter-vivo transfers and like inheritances find these are stratified in terms of their prevalence and magnitude by parental characteristics.…”

Section: Literaturementioning

confidence: 99%

Parental homeownership and education: the implications for offspring wealth inequality in Great Britain

Gregg,

Kanabar

2023

J. Soc. Pol.

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The rapid widening of wealth inequalities has led to sharp differences in living standards in Great Britain. Understanding whether and separately the rate at which individuals accumulate particular types of wealth by family background is important for improving wealth and social mobility. We show offspring wealth inequality is driven by housing wealth, and holding such wealth is becoming increasingly associated with early life circumstances relating to parental housing tenure and education, even after controlling for adult offspring’s own characteristics. Importantly, we find adult offspring whose parents hold a degree and are homeowners are no less likely to report homeownership and housing wealth compared to older cohorts from the same background. Our findings infer the intergenerational rank correlation in housing wealth is set to double in approximately three decades.

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What drives the timing of inter-vivos transfers?

Cited by 5 publications

References 14 publications

Intergenerational mobility in the UK

Intergenerational mobility in the UK

Reforming inheritance tax

Parental homeownership and education: the implications for offspring wealth inequality in Great Britain

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