Kemi Badenoch has announced a flagship Conservative inheritance tax policy that would eliminate tax liability on family homes of any value and allow couples to pass an additional £1m in assets tax-free. While politically appealing, critics contend the policy lacks economic merit.
The proposal would affect a narrow segment of the population. According to the latest HMRC data, fewer than 5% of estates were subject to inheritance tax in 2023/24. Under existing rules, married couples can already transfer properties worth up to £1m to heirs without triggering tax obligations. Badenoch’s plan substantially expands these exemptions, with projected costs of approximately £6bn in lost government revenue.
Economists raise concerns about unintended consequences. By exempting valuable family homes from inheritance tax, the policy could discourage property sales among older homeowners who might otherwise downsize. This effect would likely outweigh any benefits from accompanying stamp duty abolition proposals, particularly for high-value properties where the tax savings would exceed potential moving-related expenses.
The restriction on housing supply could disproportionately harm younger buyers and workers seeking to relocate to areas with strong job markets and expensive housing. Arun Advani of the Centre for the Analysis of Taxation at the University of Warwick noted that wealthy individuals might even be incentivized to purchase larger properties to shelter additional assets from tax, further reducing available family homes for buyers attempting to upsize. Total inheritance tax revenue is projected to rise from approximately £9bn currently to £15bn by 2030-31, meaning this policy would eliminate roughly half that revenue.
Politically, the proposal echoes historical Conservative strategies, notably George Osborne’s 2007 pledge regarding family homes and inheritance tax. While inheritance tax remains broadly unpopular among voters, critics argue that directing £6bn in foregone revenue to wealthy households cannot be justified on economic growth grounds.
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