Badenoch’s inheritance tax plan offers little economic gain at £6bn cost
Kemi Badenoch’s proposal to sharply reduce inheritance tax may be politically attractive because the tax is unpopular, but the article argues it would bring little economic benefit. It says the plan would direct public money towards people who are already wealthy and could discourage the sale of homes that younger families need.
HMRC data shows fewer than 5% of estates paid inheritance tax in 2023/24, and couples can already pass on a home worth up to £1m tax-free under current rules. Badenoch’s proposed changes would also exempt the family home regardless of value, plus £1m in other assets, at an estimated cost of £6bn. The article says that could cut forecast inheritance tax revenue, currently about £9bn this year, and create incentives for older owners to stay in expensive homes.
- The inheritance tax cut is estimated to cost £6bn.
- Fewer than 5% of estates paid the tax in 2023/24.
- The article says the policy could discourage homeowners from moving.
New here? Start with this
Inheritance tax is a tax paid on money and property left to family when someone dies. Most people do not pay it because their estate falls below the threshold at which the tax applies. The government already allows families to pass on certain assets, including homes up to a set value, without paying tax.
Inheritance tax has long been unpopular with voters concerned about passing wealth to their children. Government figures show that fewer than 5% of estates actually paid the tax in 2023/24. Under current rules, couples can pass on a home worth up to £1m to their heirs without paying inheritance tax.
Kemi Badenoch has proposed substantial changes to these allowances, including making family homes entirely tax-exempt regardless of value and allowing a further £1m in other assets to pass on tax-free. The proposal would appeal to voters who oppose inheritance tax, though questions remain about its wider economic impact.
Both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
Inheritance tax is deeply unpopular because it amounts to double taxation—wealth is taxed when earned and again when transferred—and proponents argue it discourages productive savings and investment, particularly among middle-class savers and family businesses. They contend that raising thresholds and exempting family homes would encourage economic dynamism and let families preserve what they've built for future generations, without significantly harming public finances given the tax already affects fewer than 5 per cent of estates, reflecting sound economic principle and individual liberty.
The case against
Critics argue the £6bn cost is substantial and unjustifiable given competing demands on public finances and pressure on public services; since inheritance tax affects only the wealthiest estates, this relief would worsen wealth concentration rather than help ordinary people. They maintain that inheritance itself represents unearned advantage and should remain taxed, that exempting expensive homes might discourage beneficial asset sales needed for younger families' housing access, and that tax policy should prioritise funding public services and genuine equality of opportunity over enabling wealth transfer without taxation.
Read the full article at the source →
Originally published by The Guardian as “Badenoch’s inheritance tax gambit makes no economic sense”.