Abstract
Personal wealth has grown since the 1970s twice as fast in real terms as national income. Has this rise in the wealth-income ratio led to a corresponding increase in the wealth being passed on from one generation to the next? Are we returning to the levels of inheritance found in the 19th century? The aim of this paper is to construct UK evidence on the extent of the transmission of wealth in the form of estates and gifts inter vivos. It takes a long-run view of inheritance, starting from 1896, when the modern Estate Duty was introduced, and exploits the extensive estate data published over the years. Construction of a long-run time series for more than a century is challenging, and there are important limitations. The resulting time-series demonstrates the major importance of inheritance in the UK before the First World War, when the total transmitted wealth represented some 20 per cent of net national income. In the inter-war period, the total was around 15 per cent, falling to some 10 per cent after the Second World War, and then falling further to below 5 per cent in the late 1970s. Since then, there has indeed been an upturn: a rise from 4.8 per cent in 1977 to 8.2 per cent in 2006. This increase was more or less in line with the increase in personal wealth, and has to be interpreted in the light of the changing net worth of the corporate and public sectors of the economy.
Highlights
There has been a large rise in the ratio of personal wealth to national income
Between 1979 and 2005, the share of the top 1 per cent in total income more than doubled, but the share of the top 1 per cent in total personal wealth rose by less than 1 percentage point (Atkinson 2007; Alvaredo et al 2018). Has this rise in the wealth-income ratio led to a corresponding increase in the wealth being passed on from one generation to the next? To the extent that the same assets are owned, but there has been a rise in their relative price, we may expect inheritance to rise in line
Since we are not concerned here with such “sideways transfers,” we have considered only the “small estates”, which are some 2 per cent of the recorded wealth
Summary
There has been a large rise in the ratio of personal wealth to national income. In the United Kingdom, at the end of the 1970s the ratio of personal net worth, excluding pension rights, to net national income was under 3; today it is over 5. In France, the annual wealth transmitted fell from some 20 to 25 per cent of national income between 1820 and 1910 to around 2.5 per cent in 1950, but has since risen to around 15 per cent in 2010 In his paper, he comments that “ there does not seem to exist any other country with estate tax data that is as long term and as comprehensive as the French data” Piketty (2011, page 1077). Before embarking on the estimation of the extent of inherited wealth, I begin in Section 2 by seeking to set the UK rise in the wealth-income ratio within the context of changes in asset prices and changes in the net worth of other sectors of the UK economy
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