What’s left behind

There’s a lot of heated discussion around about the elderly (or their children) wanting free social care to preserve their inheritances and/or how inheritances perpetuate or increase inequality. Here’s some new information from HMRC that might throw a bit more light on things.

HMRC do publish an extensive report on Inheritance Tax statistics which are quite informative, but as so often, make one wonder about some of the aspects that aren’t reported. One thing which is of interest, for example, is the extent to which people are leaving surplus assets over and above their houses. Obviously if lots of elderly people have surplus cash or investments sloshing about that rather undermines claims that they can’t afford to pay for help they need at home. On the other hand, they might be wealthy only on paper because although they own their own houses they are eking out small pensions and only just about managing financially.

This is the most relevant one of HMRC’s charts, breaking down assets for estates in various value bands for estates. However, it doesn’t show you the number of estates falling within each band, nor can you infer very much about the extent to which people in properties of different values have other assets (for example a poverty-stricken pensioner leaving a million-pound property is in the same band as someone comfortably-off enough to have half a million in cash and shares while living in a half-million pound house).

So I asked HMRC for information about the number of estates by value of UK residential property and the value of the other assets in these estates. Figures for 2013–14 deaths are the most recent available: the data are laggy because it can take time for probate to be granted and estates finalised. The data only include estates that require a grant of registration which means that they do not cover (broadly) estates worth less than £5,000, nor deaths where the estate passes to a surviving partner. The latter is actually a good thing, as it means we get a view largely of those estates that are passing down the generations. So here’s the basic picture. Nearly three-quarters of these estates involved UK residential property valued at less than £200,000, and only 3% involved UK residential property valued at £500,000 or more.

source: data — HMRC response to my FOIA request

HMRC’s chart at the top of this post showed that a sizeable proportion of assets in estates was comprised of ‘other’ assets even where the total estate value was low. Looking at the value of other assets associated with these value bands of UK residential property is quite interesting. This remains the case when seeing how the mean value of ‘other’ assets matches up with the value of the UK residential property in the estate. However, the median value of ‘other’ assets seems to tell a different story. In this picture I have excluded the tiny number of estates with £1m+ properties so that the bars for the lowest-value properties can be clearly seen. For nearly all value bands of UK residential property the mean value of other assets is about three-quarters the value of the property itself. This would suggest loads of money available to pay for care. The only exception is when the property value is less than £50,000. You might ask who has a property in the UK worth less than £50,000, but there are likely to be leasehold interests left by old people with only a short number of years left on the lease, and people with no property. But the mean value of other assets in these cases is three times the property value at over £150,000.

However, what’s most interesting and new in the data is the difference between mean and median value of other assets. It is bigly indeed at every property banding. Thus although the mean value of assets left by people with near-million-pound properties approaches £700,000, the median is barely £250,000. Similarly, in estates containing houses around average value for properties outside London (the £100,000 to £199,999 band) the mean value of other assets is over £100,000 but the median value only £40,000. Now this sort of amount doesn’t go very far. My own dad has just had quotes of £1300 a week for a run-of-the-mill residential care home which if he went there now would exhaust £40,000 by the end of the year. And by definition, if that is the median then half of the people leaving estates in this property value banding are leaving less than £40,000 in other assets. Of course it might be that they did have more money, but had already spent most or much of it on care before they died!

However, if the question is ‘do lots of old people manage to hang on to large amounts of liquid assets rather than pay for care so that they can pass it on to their children or grandchildren?’ the mean amounts suggest that the answer is yes, but the fuller picture given by comparing these to median amounts suggest that the real answer is ‘Maybe to a lesser extent than you might think’. Looking at what people leave when they die, it can be inferred that there is a very uneven distribution of non-property assets with a small number of people leaving very large amounts and a lot of people leaving not much at all.

In estimating the capacity for self-funding of care by the elderly it would be easy to be misled if one were looking only at the mean amounts people are leaving behind. So one would hope that those responsible for policy in this area ensure they have a decent set of data that enables them to take proper account of these distributional effects.