Some English dynasties hiding 35 per cent of inherited wealth according to historical research

Historical ‘big data’ can help reveal wealth detectable only by the shadow it casts
- Professor Neil Cummins
Stack of 20 pound notes Image by Chris from Pixabay

Some English dynasties are hiding at least 35 per cent of their inherited wealth, according to new research from the Department of Economic History.

The paper, published in the August issue of The Economic History Review, uses historical data to reveal nearly 10,000 families where £9 billion of their wealth is ‘missing’.

This figure is likely to be the tip of the iceberg since the research only tracked the wealth of a small group of elite families with distinctive surnames(1). The paper suggests that this sample is likely to be representative of the top one per cent of wealthy families and the proportion of money they hide.

Professor Neil Cummins, from LSE’s Department of Economic History and author of the paper, used probate records from 1892 - 1992 to compare declared wealth at death before and after 1920. After 1920, taxes due on wealth at death became more significantly higher –  increasing from two or three per cent to 85 per cent for the wealthiest –  and thus increased the incentive to hide wealth.

He calculated the expected flow of inherited wealth for these dynasties after 1920 using estimated rates of return for typical asset portfolios held by the wealthy, including stocks, bonds, housing wealth, and cash. The destruction of wealth due to war and death taxes paid were taken into account to estimate ‘true’ inherited wealth.

Professor Cummins found that the declared wealth of certain elite dynasties post 1920 is systematically below what their inherited wealth would be expected to be.

A portionof this hidden wealth is likely to be legally held in tax-exempt trusts or will have been given away as gifts before death to individuals or charities. Some will potentially be hidden due to illegal tax evasion.  

Professor Neil Cummins said: “Even the grandest of fortunes can be diluted or destroyed by marriage choice, mad inheritors, disastrous investments, betrayal, theft, stupidity and chance. However, you’d have to be extraordinarily naïve to believe that the wealth of these families all suddenly dropped after 1920, precisely coinciding with the advent of high inheritance taxes.

“Because I looked at data related to particular, although rare, surnames, my research cannot accurately estimate the wealth of any one specific family. But it does provide a plausible minimum estimate of the amount of hidden wealth across all these English dynasties.”

The proportion of wealth held by the top one per cent is generally understood to have greatly declined over the last century due to increased wealth and death taxes on the elite, but the research shows that the impact of this ‘great equalisation’ is largely illusory. The paper suggests that at least 28 per cent of the decline in the wealth share of this super wealthy group can be attributed to hidden wealth.

While changes in probate records meant that Professor Cummins could only analyse hidden wealth up until 1992, he found that this wealth appears to continue to impact the behaviour and boost the contemporary expenditure and living standards of these families.

Wealth-hiding dynasties – independent of declared wealth – were more likely to appear in the Paradise Papers and other investigations by the International Consortium of Investigative Journalists for the Offshore Leaks Database of 2013 – 16 .

Hidden wealth was also found to correlate with postcode house value in 1999 and attendance at Oxford and Cambridge universities 1990 –2016.

Professor Cummins said: “Historical ‘big data’ can help reveal wealth detectable only by the shadow it casts. Tax authorities could use this method to investigate potential tax evasion among certain wealthy dynasties.”

Behind the article

1.  For the analysis, only rare surnames of English origin are selected, which have fewer than 100 people observed in the 1881 census and these rare surnames are tracked in the Principal Probate Registry (PPR) Calendars from 1892 to 1992