The Tory leader’s proposal to slash the inheritance tax would allocate £6bn of taxpayer money to the already-wealthy. Kemi Badenoch’s inheritance tax gambit is a Conservative classic, reminiscent of George Osborne’s high-profile pledge in 2007 to "take the family home out of inheritance tax." This promise was significant enough to deter Gordon Brown from calling a snap general election.
Political Context
Osborne’s plan involved a £1m threshold for inheritance tax, but the global financial crisis had severely impacted public finances by the time the Conservative-Lib Dem coalition took power in 2010, preventing its implementation. However, the promise shifted the political conversation and contributed to Brown’s decision not to pursue early elections.
Public Sentiment
Inheritance tax (IHT) is notoriously unpopular. Many families, even those unlikely to be liable, worry about their children facing this tax. The backlash against Rachel Reeves’s reform of the inheritance tax regime for family businesses and farms, highlighted by tractors streaming down Whitehall, underscores its unpopularity.
Economic Implications
Despite its political appeal, the Tory plan lacks economic sense. The latest data from HMRC indicates that less than 5% of estates were liable for any inheritance tax in 2023/24. Currently, a married couple can pass on a property worth up to £1m to their children or grandchildren without incurring any inheritance tax. Badenoch’s proposed regime would allow couples to pass on their entire family home, regardless of value, along with an additional £1m in other assets without tax.
