Fewer homes in estates will leave less for the next generation and could impact inheritance tax
Hopes of inheriting the family home to get on the property ladder or climb up it are fading, according to a new study. The report reveals that fewer estates will include property in the future thanks to falling homeownership rates. This means less money will be passed down through the generations, impacting family finances and even the government’s tax take.
For decades, inheriting property has been a reliable way to build wealth, with soaring house prices boosting inheritances. But research from estate agency Hamptons suggests this trend is coming to an end.
Currently, four out of five estates (79.2%) include a property. In the 2021-22 tax year, this equated to 175,000 out of 221,000 estates. These figures are the highest ever recorded and are the result of a surge in homeownership since World War Two. In the 1950s, less than half of the deceased owned a home, compared to around two-thirds (66%) of over-65s today.
However, this trend is expected to level off and then reverse as fewer people own their own homes. This will make it much harder for younger generations to rely on inheritance to get onto or move up the property ladder.
Impact on Inheritance Tax
The shift is also expected to impact the amount of inheritance tax collected by the government. Currently, inheritance tax raises billions of pounds each year for the Treasury. In 2023-24, this figure was £7.5 billion, up from £7.1 billion the previous year. However, the shrinking number of estates containing property could see this revenue stream decrease.
Mortgages on Inherited Homes
Another factor impacting inheritances is the rise in mortgages being left on properties when the owner dies. According to Hamptons, more than one in ten homes in inherited estates still had an outstanding loan. The average debt was £100,000, significantly higher than the £65,000 average a decade ago.
This trend for older homeowners to have larger mortgages looks set to continue as people buy later in life and take out longer mortgage terms. Data from the Bank of England highlights the scale of this trend, with a million mortgages taken out in the past three years alone extending past the state pension age of 66.