The conservatives have vowed to scrap inheritance tax on the family home but questions have been raised over the affordability of the move.
Speaking at the Conservative party conference, opposition leader Kemi Badenoch announced she will overhaul inheritance tax – often dubbed Britain’s most hated tax – if her party wins the next general election.
In addition to announcing that “nobody will ever pay inheritance tax on their family home”, Badenoch also pledged to let couples leave an additional £1 million tax free and said her ambition is to abolish inheritance tax altogether as soon as the Treasury can afford to do so.
Under the current system, a 40% tax is paid when someone’s estate exceeds £325,000. When someone dies, they can transfer this tax-free allowance to a surviving spouse or civil partner which increases the combined threshold for a couple to £625,000.
In addition to this, individuals receive an extra allowance of £175,000 each when the family home is left to children or other direct descendants. This means most married couples can leave up to £1 million without paying inheritance tax.
While the Conservatives’ pledge remains light on details of exactly how it would work, it is likely that the party would increase the £325,000 threshold to £500,000, on top of the value of their family home.
How many people are affected by inheritance tax?
Official figures show that in 2024/25, around 30,400 deaths in the UK were liable for inheritance, accounting for around 5% of all UK deaths that year.
However, a combination of rising property values, frozen thresholds and the upcoming inclusion of pensions in inheritance tax, will see the number of estates affected rise.
According to the Institute for Fiscal Studies, by 2032/33 12% of people will have inheritance tax due either on their own death or that of their spouse or civil partner.
As a result, inheritance tax has become something of a political hot potato.
What will it cost the government?
Early estimates from Oxford Economics have put the total cost of reforms around £6.6 billion in 2029/30.
Rachel Vahey, head of public policy at AJ Bell, said: “Easing the pain of Britain’s ‘most hated tax’ may be an eye-catching pledge for potential voters, but there is no getting around the financial consequences.
“Badenoch says that gap can be filled through welfare cuts, but delivering those savings is far easier said than done. On top of that there is a real risk the policy simply becomes viewed as a blatant transfer of wealth from low-income and vulnerable families to larger estates.
“The fundamental problem is that inheritance tax is becoming more common, and a tax paid by more estates, while remaining deeply unpopular. As its reach expands, so will the pressure for change.”
Shaun Moore, tax and financial planning expert at Quilter, said: “For many families, inheritance tax is no longer a tax for those in mansions or aristocrats. Years of rising house prices and frozen thresholds mean it is increasingly catching families who happen to own a valuable home and have built up pension and investment wealth over a lifetime.
“That said, there is no escaping the fact that this would be a very expensive tax cut. The Conservatives are tapping into a genuine frustration among voters who feel inheritance tax has expanded far beyond its original reach. However, if implemented in full, these proposals would likely reduce inheritance tax receipts considerably at a time when the Treasury is becoming ever more reliant on them.
“The biggest winners would be families with substantial housing and pension wealth. But ultimately, this would have to be funded from elsewhere. The question is what would have to give if the Conservatives returned to government and sought to implement the policy.”
Rob Hillock, head of personal financial planning at Broadstone, added: “Above all, families need clarity and consistency on the future direction of inheritance tax. Retirement and estate planning are long-term decisions, often made over many years, and repeated changes to the tax treatment of pensions and inherited wealth make that planning much harder. Whatever policy is ultimately pursued, savers need a stable framework that gives them the confidence to make long-term financial decisions.”
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