Introduction

Conservative leader Kemi Badenoch has pledged to overhaul inheritance tax if her party wins the next general election, promising that no family will pay the levy on their family home and couples could pass on an additional £1million tax-free. The proposal marks a significant shift in UK fiscal policy ahead of the upcoming election.

What Happened

At the Conservative Party conference, Badenoch announced plans to raise the inheritance tax threshold from £325,000 to £500,000 and fully exempt family homes from the tax altogether. Under current rules, estates worth more than £325,000 face a 40% levy, though most married couples can already leave up to £1million tax-free by transferring allowances between spouses. BBC Verify has detailed how the existing system works and what the Conservative reforms would change.

Why This Matters

The proposed changes would reduce the number of estates caught by inheritance tax, dropping from an estimated 52,100 in 2029-30 to around 22,000 under the Conservative plan. However, the Institute for Fiscal Studies warns the primary beneficiaries would be the wealthiest 1% of estates, typically those worth £2.1million or more, mostly concentrated in London and the South East. Experts also caution that fully exempting family homes could lock wealth into property, slowing downsizing and worsening the housing supply crisis. The Office for Budget Responsibility estimates the cost at £6billion annually by 2029-30, while the Treasury currently raises nearly £9.5billion from inheritance tax each year.

Key Takeaways

  • The Conservative plan would raise the inheritance tax threshold to £500,000 and fully exempt family homes passed to children or direct descendants.
  • An estimated 22,000 estates would pay inheritance tax by 2030, down from projected 52,100 under current trends.
  • Wealthier households, particularly those with homes valued over £1million, would see the largest tax savings.
  • Critics argue the policy could discourage downsizing and trap wealth in the property market, while supporters claim it would stimulate growth.
  • The Institute for Fiscal Studies notes the benefits would accrue mainly to the richest estates, raising questions about fairness and fiscal sustainability.

Conclusion

Kemi Badenoch's inheritance tax proposals represent a major policy shift, aiming to ease the tax burden on families while keeping homes within the next generation. However, the plan's heavy skew toward wealthier households and potential impact on the housing market have drawn sharp criticism from economists and think-tanks. As the general election approaches, the debate over who truly benefits from such reforms will likely intensify, making it a key issue for voters to watch.