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Inherited wealth: Does it drive inequality that no amount of workplace success can match?

Central Bank study offers some unexpected findings for debate around inheritance and wealth

Inherited wealth, intergenerational gifts: these are touchy subjects. Many believe they drive a fundamental inequality in society that no amount of success in the workplace can match. And yet it is labour that gets taxed the most, that the State relies on financially, not taxes on wealth.

The notion that trust fund kids are still richer than young go-getters because of the actions of a previous generation is provocative and undoubtedly true in many cases. But inherited wealth – its spread, its impact – is more complex and more nuanced than that.

The Central Bank weighed into the debate last week with a new study, entitled “The Long and the Short of it: Inheritance and Wealth in Ireland”, which delivers some perhaps expected findings and one less obvious one. It reveals that over a third of households in Ireland (approximately 690,000) have received some kind of inheritance or gift in the last 20 years. The accumulated value of these intergenerational transfers was put at €97 billion. Money was the most common type of asset received (57 per cent) followed by dwellings (33 per cent) and land (19 per cent).

According to the authors, the average value of such transfers in 2020 terms was €229,335, with the median value being €80,913.


The study, conducted in the second half of 2020, found that households which had received inheritances or gifts were “substantially wealthier” than those that did not. Their median income was typically 17 per cent higher while their net wealth was 155 per cent higher.

Households that received inheritances also tended to own more homes and more businesses than their non-inheriting counterparts. The study also noted that inherited wealth in Ireland as a proportion of overall wealth has been rising, with a greater proportion of households in 2020 inheriting wealth in the past 20 years than any time before this.

These are perhaps the expected findings. The surprising one was that these transfers are not driving increased levels of inequality, which at first might seem counterintuitive.

The study found that inherited wealth represented a greater share of total net wealth for households in the middle of the wealth distribution curve than for the wealthiest households.

As a result, the study concluded, it contributed little to wealth inequality, “and may even have reduced it over time”.

In other words, inheritances for the super wealthy make less of a meaningful difference because they are already wealthy while inheritances for those in the middle of the income distribution do have a meaningful impact, lifting those in the middle up. Another way of saying this would be that inheritances are important for acquiring wealth, but they don’t make much difference to the overall distribution of wealth here.

If inheritances aren’t the primary driver of inequality here, what is?

Housing. Several studies bear that out. A recent one by the Economic and Social Research Institute (ESRI) concluded that home-ownership was the primary delineator of wealth in Ireland and that falling rates of home ownership coincided with increased level of inequality.

The wealth equation is a hard one to disentangle, however. We know that approximately 40 per cent of first-time buyers are being gifted money to help them build a deposit to buy a home. If housing is the chief driver of wealth, that would seem to link these gifts to inequality. Nonetheless, the Central Bank’s study concludes otherwise.

French economist Thomas Piketty’s argument is that the wealth generated from a return on assets – financial, property – will always outstrip earned wealth. He argues therefore that inherited wealth will, on average, “dominate wealth amassed from a lifetime’s labour by a wide margin”. In Ireland, housing has generated high returns, much higher that what you could save out of your labour income to invest. Hence its central place in the equality debate here.

The authors of the Central Bank’s study also note that their research does not capture transfers of human capital or intangibles as they call them.

“There is evidence that human capital transfers across generations are persistent and that family environment is also important for these transfers,” they say. In other words, if your parents are better-educated, if they are well-connected, if they offer their children jobs in the family company, that unsurprisingly translates into better wealth outcomes for their offspring. We’ve no way of measuring this type of transfer.

Shifting the burden of taxation away from labour to property has long been advocated on the grounds that labour is more productive and beneficial to society and property less so. There’s a strong argument for affording labour a better roll of the tax dice. The Commission on Taxation has advocated just such a shift in emphasis, noting in a recent report that taxes on wealth and property here were too low and should be increased to broaden the tax base and protect the tax system from future challenges.

Most people tend to support increased levels of inheritance tax provided it falls on people richer than them.

Wherever people are in the income distribution curve, those with wealthier parents will inherit more than those with poorer ones. How much this damages social mobility is an open question.