Tuesday, July 23, 2024

As house prices soar, a fifth of millennials are depending on family inheritance to get a foot on the property ladder

In a feature on what they dub ‘Generation regret’, insurance and asset management providers Aviva reported that the majority of millennials (63%) are relying on a windfall or one-off event to help secure their financial futures, rising to 72% in those who went to university. With an average disposable income of just £156 each month, 18% of people aged between 18 and 35 are depending on family inheritance.

But as the Government pushes ahead with sharp increases in probate fees, this generation, largely reliant on inheriting property from parents, face crippling inheritance tax and probate fees when they do so.


Millennials are increasingly reliant on inheritance

Responding to a survey by HSBC, millennials were largely optimistic about the prospect of owning their first home within the next five years, but increasing house prices and slow wage growth mean that the reality remains a long way off for most. The millennial demographic is the first generation to earn less than their predecessors: men between the ages of 22 and 35 were recently calculated to earn £12,500 less than the previous generation did by age 30.

The average cost of a one- or two-bedroom starter home has risen by as much 10.5% since 2015. Across London, the average price of property for first-time buyers has increased by 55% in just four years, coming in at £533,105. Given that 69% of those hoping to purchase a home in the coming years report they have yet to save enough for a deposit, the dream of homeownership looks set to be deferred for a while yet.

As a result, the Aviva survey concludes, one in three millennials believe they have been priced out of the property market. Meanwhile, more than one in ten millennials who do own their home with a mortgage are relying on their property increasing in value to enable them to move up the property ladder.


Those who do inherit face crippling fees 

Changes to inheritance tax (IHT) and probate valuations came in with the 2017 Spring Budget, and it was something of a mixed bag: A plan to cut inheritance tax will see the threshold value on which each individual will be required to pay increase by £175,000. By 2020, this means married couples will be able to pass on assets worth up to £1m, including a family home, without being charged any IHT at all.

However, probate fees—payable when claiming inheritances—are now being called the ‘new inheritance tax’. Probate valuation is prepared in accordance with HMRC guidelines to help determine whether or not IHT is payable on an estate and, if so, how much will be charged. Due to high property values, many estates now fall over the inheritance tax threshold, even if their contents are valued modestly.

In tandem with reformed inheritance tax, new probate charges are set to come into effect this year. The original proposal for a new “sliding scale,” which can be as high as £20,000 for larger estates was recently scrapped by the government, but it’s likely some sort of increase on the current flat rate of £215 will still be introduced.

If millennials continue to be burdened by fees simply to obtain the necessary inheritance they require to get a foot on the property ladder, it threatens to stagnate the property market in years to come.

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