Some £17bn is gifted or loaned informally each year, almost all from parents to their adult children, according to latest research from the Institute for Fiscal Studies.
These gifts and loans mostly help with buying a house or is gifted at the point of marriage, but these transfers are very unequally spread.
Most transfers come from parents aged over 50 to children in their late 20s and early 30s.
The research revealed that about 30 per cent of young adults receive at least one substantial transfer, of £500 or more, over any eight-year period.
However, the IFS said these gifts increase inequality among the younger generation.
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.
White young adults are three times more likely to receive a substantial gift than Pakistani or Bangladeshi young adults.
Bee Boileau, a research economist and author of the report, said: “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 research, funded by the IFS Retirement Savings Consortium and the Economic and Social Research Council, also found half of the value of gifts received is reported as used for property purchase or improvement and those using transfers for this purpose received more than £20,000, on average.
People are also particularly likely to receive a large gift when they get married, but are not more likely to receive transfers when facing adverse events, such as losing their job.
Those in the least-wealthy third are relatively more likely to report using gifts for the purchase of a new car, to pay off debts or for educational expenses.
Ian Dyall, head of estate planning at Evelyn Partners, said: “Some of this family gifting could be driven by the spread of inheritance tax in recent years, as property and other asset prices have risen while exemption allowances have remained frozen.
“Most parents with hard-earned savings quite understandably want to help out their adult children at times of financial stress, and in some cases this could also reduce IHT liability - whether or not that was a motivation behind the gift.”
However, Dyall added that IHT is an “unpopular levy” across income cohorts and now affects families of even quite modest means.
“In most cases, if gifts were not made during lifetime, then the children would inherit the family assets on their parents’ death anyway, with the possibility of a bigger IHT payment to the Treasury – which the children, who could be at any point on the wealth spectrum, would be liable for,” he said.
Elsewhere, the research also found that women are more likely to receive gifts in early adulthood and much more likely to give gifts and loans following the death of a spouse.
Even when we account for the differences in their income, wealth level and other characteristics, women are more likely than men to receive gifts at younger ages, while men are more likely to give gifts at older ages.
Women often make gifts and loans when they become widowed, while men are not any more likely to give when they lose a partner.
sonia.rach@ft.com
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