Who gives wealth transfers to whom and when? Patterns in the giving and receiving of lifetime gifts and loans

18th February 2023

A report by the Institute for Fiscal Studies looking at wealth transfers.

We examine the patterns in the giving and receiving of significant wealth transfers during life, and the association of transfers with life events.

Executive summary
This report gives a new and up-to-date picture of the giving and receiving of significant intergenerational wealth transfers during life, summarising the findings of two research papers. New data from the Wealth and Assets Survey (WAS) allow us to build a comprehensive picture of the flow of wealth transfers made during life. The WAS asks about the giving and receiving of gifts and loans worth £500 or more between friends and family. We examine the change in patterns of giving over time, who gives and receives transfers, the contribution of these transfers to early-adult-life economic inequalities, and the events associated with giving and receiving wealth transfers during life.

Key findings
1. Over a two-year period, around 5% of adults receive a substantial gift and 2% receive a substantial loan, from friends or family. Over an eight-year period in adults' 20s and early 30s, around 30% receive at least one transfer. Gift receipt has become slightly more common since 2017 but there is no strong trend of larger amounts being transferred over time.

2. Transfers are very unequally sized. The median gift and median loan received are both around £2,000 but the 10% largest transfers are over £20,500. The largest 5% of transfers made up more than half of the total value of transfers received over 2018-20.

3. Substantial transfers during life are mainly gifts, rather than loans. The annual flow of gifts is around four times the value of the annual flow of loans. In total, these lifetime transfers are around a fifth of the size of the annual flow of inheritances.

4. These transfers overwhelmingly represent gifts from parents to their adult children, with parents giving 83% of the value of gifts and (great-)grandparents contributing just 3%. Some parental giving could be inheritances passed straight on to children, but only 3% of the value of inheritances directly received is matched by a contemporaneous gift being given.

5. Transfers increase inequalities in resources in early adulthood, though their direct impact is modest. The lowest-income fifth receive on average £30 per year in transfers, worth 0.5% of income, during their 20s and early 30s. This compares with £790 per year, or 2.6% of income, for the highest-income fifth.

6. Transfers strengthen the relationship between parents' and children's economic resources. They are worth 1% of income for the children of renters, compared with 3% of income for the children of high-educated homeowners. Over half (56%) of the value of transfers is made by the wealthiest fifth of adults.

7. Gift receipt is more frequent for white young adults than for black or Asian young adults. While 1 in 10 white young adults receive a significant gift in a two-year period, around 1 in 25 black Caribbean or black African young adults and less than 1 in 30 Pakistani or Bangladeshi young adults do.

8. Women are more likely than men to receive transfers, especially at younger ages. Even when we control for the differences in their income, wealth level and other characteristics, women are around 1 percentage point more likely to receive gifts than men.

9. Men are more likely to report giving gifts than women, especially at older ages. Controlling for differences in their income, wealth level and other characteristics, men are about 1.5 percentage points more likely to report giving a gift over a two-year period than women.

10. Those in the South West are more likely to make transfers, even accounting for the higher levels of wealth in these regions. This may be driven by differences in the perceived needs of receivers across regions.

11. First home purchase is strongly associated with transfer receipt. Someone moving into homeownership is 9 percentage points - or two-and-a-half times - more likely to receive a gift over the same period than someone who is otherwise similar but did not become a homeowner. Half of the value of gifts received is reported as being used for property purchase or improvement.

12. Marriage is also significantly associated with transfer receipt. Getting married between waves is associated with a 9 percentage point higher rate of receiving a transfer over the same period, compared with someone similar who did not get married between waves.

13. Substantial gifts and loans are less responsive to adverse events such as job loss, income falls and separation from a partner. This is consistent with other evidence that smaller transfers are sometimes made in response to these events.

14. Those with different levels of wealth and from different parental backgrounds report using gifts in different ways. Those with homeowning parents are particularly likely to report using a gift for property purchase or improvement. Those in the bottom-wealth third are more likely than those who are wealthier to report using gifts for the purchase of a new car or driving lessons (16% of the total received), to pay off debts (12% of the total) or for educational or family expenses (10% and 7% of the total, respectively). This differing use of transfers is likely to have knock-on impacts on inequalities in wealth and living standards later in life.

15. Gifts and loans also appear to be made in response to unexpected events in the lives of givers, including being widowed and receiving an inheritance. Women are 20 percentage points more likely to make a gift when becoming widowed, while there is no such increased likelihood for men. This suggests a potential response to a change in control of household finances but may also raise concerns about whether these transfers are always in the giver's best interests.

Introduction
The value of UK household wealth has roughly doubled compared with incomes in recent decades (Bangham and Leslie, 2019; Bourquin, Brewer and Wernham, 2022). This wealth boom has accrued disproportionately to those at older ages. The growth in house prices since the mid 1990s has largely driven this growth, benefiting older homeowners and meaning later-born generations have been far less likely to move into homeownership than their predecessors. In a further hit to the relative economic fortunes of younger people, earnings growth has been sluggish over the last 15 years and average incomes of people of working age have fallen relative to those of pensioners (Bourquin, Brewer and Wernham, 2022).

Much of the wealth held by older generations will at some point be passed down to today's younger people. Consequently, inheritances can be expected, roughly, to double compared with receivers’ lifetime incomes in the coming decades (Bourquin, Joyce and Sturrock, 2021). However, inheritances are set to arrive later and later in life, as a result of increasing life expectancies at older ages across generations. Bourquin, Joyce and Sturrock (2020) estimate that the average age at which an individual’s final living parent will die is set to rise from 58 for those born in the 1960s to 64 for those born in the 1980s: a six-year increase in just two decades.

As inheritances are received later, wealth is distributed more unevenly between generations, and as younger generations face low earnings growth and high house prices, wealth transfers made during life may be growing in importance and in size. Despite this, a limited amount is known about this during-life intergenerational wealth flow. It is likely to differ in important ways from the flow of inheritances, since givers have control over the time at which they make transfers if they are made during life, so may decide when to give based on specific events in their or the receiver’s life. For example, givers might play an increasing role in helping younger people get on the housing ladder or providing support during periods of unemployment. During-life transfers may also interact with government policy in important ways: they may respond to inheritance taxation policies, for example, since large gifts made more than seven years before death are not subject to inheritance tax in the UK. Like inheritances, they have important implications for the intergenerational transmission of inequality.

Our focus is on the substantial financial transfers recorded in the Wealth and Assets Survey (WAS), but it is important to note that there will be wealth flows below the £500 threshold that are not included in our study. It is also the case that WAS fails to fully capture the very richest in the UK (Advani, Bangham and Leslie, 2021). We will thus miss some of the gift-giving behaviour of the very wealthiest individuals, but we are still able to describe patterns of gifts and loans for the vast majority of the population.

Read the full report HERE
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