Inheritance tax: What's in the Conservatives' plan and who benefits?

Conservative leader Kemi Badenoch has declared plans to reform inheritance tax if her party secures victory in the upcoming general election. Speaking at the party’s annual conference, Badenoch promised that “nobody will ever pay inheritance tax on their family home,” and also revealed that couples would be able to leave up to an additional £1 million tax-free.

Currently, inheritance tax is charged at 40% on estates exceeding £325,000, with a transfer allowance allowing surviving spouses or civil partners to combine their thresholds to £650,000. In addition, there is a transferable allowance of £175,000 per individual for a family home left to children or direct descendants, meaning most married couples can leave an estate worth around £1 million without incurring inheritance tax. The Conservative proposal aims to raise the threshold to £500,000 and completely exempt family homes from this tax. Under the new rules, an estate including a house valued at £2 million would see its inheritance tax bill reduced from £400,000 to zero.

In the current landscape, about 30,400 estates were liable for inheritance tax in the UK during 2024-25, representing about 5% of all deaths. However, this number is expected to increase due to frozen thresholds and growing inherited wealth. The Institute for Fiscal Studies (IFS) forecasts that by 2032-33, around 12% of estates will incur inheritance tax, while the Conservatives cite consultancy Oxford Economics’ prediction that the number will rise to 52,100 by 2029-30.

The Conservatives estimate that their reforms could reduce the number of taxable estates in 2030 to 22,000. Most inheritance tax revenue comes from higher-value estates. The IFS warns that if inheritance tax were abolished entirely—a goal Badenoch has mentioned as a future objective—the wealthiest 1% of estates valued at £2.1 million or more would benefit from half of the tax cut. Critics have long pointed out that wealthy individuals often use legal methods, such as family trusts, to minimize their inheritance tax liability. In 2023-24, estates worth £10 million paid an average effective inheritance tax rate of only 18%, according to HM Revenue and Customs estimates. The IFS commented on the policy by noting, “The biggest beneficiaries would be those with the highest wealth and the most valuable homes – and their descendants. This is a very well-off group, mainly living in London and the South-East of England.”

Regarding the financial impact, the Office for Budget Responsibility projects inheritance tax revenue to be £9.5 billion in 2026-27 and rising to £14.5 billion by 2030-31. The Conservative plan is expected to cost approximately £6 billion annually by 2029-30, based on analysis by Oxford Economics. The party claims to have identified £71 billion in annual savings, including £36 billion from welfare cuts. However, experts like Professor Andy Summers, director of the Centre for the Analysis of Taxation, have criticized the policy. He described it as “just about the worst possible way to deliver an inheritance tax cut,” warning that exempting family homes regardless of value could encourage older people to keep their savings tied up in their property, discouraging downsizing and further exacerbating housing market issues. While the Conservatives argue that inheritance tax hampers economic growth, research from the Organisation for Economic Co-operation and Development suggests that inheritance taxes generally have a less negative impact on growth than taxes on earned income

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