The latest Wealth and Assets Survey carried out on behalf of the Institute for Fiscal Studies (IFS) claims that gifts and informal loans from family members have further skewed the pattern of home ownership in the UK. Between 2018 and 2020 annually funds and assets worth £17 billion were passed between family members, an increase of £3 billion per year over the period from 2016 to 2018. Such asset transfers are commonly known as coming from the “Bank of Mum and Dad”.
Unsurprisingly, of the £17 billion gifted and loaned each year nearly all (£14 billion) is passed from parents to their children. The most common reasons for the transfers are to give help in buying a house or as a gift on a child’s marriage. The research found that the majority of the funds came from parents over the age of 50 donating to children aged in their late 20s and early 30s. University-educated home owning parents were found to give six times more in asset transfers than parents who rented their home, and were also nearly three times as likely to donate funds than were renter-parents. The wealthiest 20% of home owning parents account for over half the value of the transfers, with a disproportionate number living in London and the South East.
As well as the desire to help their children set up home for themselves, other financial considerations play a part in the re-distribution of family assets. Gifting money to family members helps to avoid paying inheritance tax (IHT) on assets when you die. Everyone in the UK receives an IHT allowance of £325,000 against the value of their assets, and an additional sum of £175,000 can be claimed if you leave your main residence to a direct descendant. For couples this means that assets worth up to £1 million can be passed on to children or grandchildren without paying IHT. In addition, assets can be gifted to adult children without any tax due so long as parents live for seven years after the gift has been made.
In terms of the value of their loans and gifts the Bank of Mum and Dad sits nominally in seventh place in the table of major UK lenders. The Big Six of Lloyds, NatWest, Nationwide, Santander, Barclays and HSBC together accounted for £221 billion in mortgage lending in 2021, with the Bank of Mum and Dad coming next with a nominal share of 4.6% of the lending market.
Author of the IFS report, Research Economist Bee Boileau commented: ‘Substantial intergenerational transfers happen when people – particularly those with richer parents – are in early adulthood and are buying their first home or getting married. While these transfers are important assistance for some, they are very unequally spread. The children of university-educated home owning parents receive around six times more in wealth transfers during their 20s and early 30s than the children of renters, while white young adults are three times more likely to receive a substantial gift than Pakistani or Bangladeshi young adults. As well as the benefits these transfers can provide, policymakers should therefore keep in mind these transfers’ potential to pass on inequalities from one generation to the next.’
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