- Published
Conservative leader Kemi Badenoch has announced she will overhaul inheritance tax if her party wins the next general election.
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party → publish → election
She told the Conservatives' annual conference that "nobody will ever pay inheritance tax on their family home" and couples will be able to leave an additional £1m tax free.
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couples → tell → m
Tax experts say the party's £6bn per year estimate of the cost of the plan is reasonable, but warn the policy would primarily benefit wealthier households and could discourage older people from moving to smaller homes.
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policy → say → homes
BBC Verify has looked into the details of the policy.
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Verify → look → policy
How will it work?
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it → work → ?
Under the current system, inheritance tax of 40% is paid when someone's estate - the total value of their money and property exceeds £325,000.
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estate → pay → 325,000
Anything under this amount is not taxed.
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Anything → tax → amount
And, when a person dies, they can currently transfer this tax-free allowance to a surviving spouse or civil partner which increases the combined threshold for a couple to £650k.
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which → die → 650k
On top of this individuals can get an additional transferable allowance for a family home of £175k each when it is left to children or other direct descendants.
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it → get → children
So at present most married couples can potentially leave £1m without paying inheritance tax.
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couples → leave → tax
The Conservative plan would increase the £325,000 threshold - the point at which you start paying the tax - to £500,000 and fully exempt a family home from inheritance tax.
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you → increase → tax
That would reduce to zero under the Conservatives.
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That → reduce → Conservatives
How many people currently pay inheritance tax?
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people → pay → tax
Official figures show that in 2024-25 around 30,400 deaths in the UK left estates which were liable for inheritance tax.
This was around 5% of all UK deaths in that year.
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This → show → year
But the number of estates paying inheritance tax is set to rise, due to the increasing value of inherited wealth being passed on and the threshold having been frozen.
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threshold → pay → wealth
The Institute for Fiscal Studies (IFS) has estimated that by 2032-33 around 12% of people will have inheritance tax due either on their own death or that of their spouse or civil partner.
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% → estimate → spouse
Citing analysis by the consultancy Oxford Economics, the Conservatives say the number of estates paying the tax will rise to 52,100 in 2029-30.
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number → cite → 2029
How many people would benefit from the Conservative policy?
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people → benefit → policy
The Conservatives estimate their reforms would reduce the number of affected estates in 2030 to 22,000.
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reforms → estimate → 22,000
Official data shows higher value estates pay the majority of the inheritance tax collected.
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estates → show → tax
The IFS has estimated that if inheritance tax were to be entirely scrapped, which Badenoch has identified as a longer term aspiration, the wealthiest 1% of estates - those worth £2.1m or more - would get half of the benefit of the tax reduction.
And one long-standing criticism of inheritance tax is that the wealthy use legal ways to avoid paying it like putting their assets into family trusts to reduce the amount of inheritance tax ultimately due from their estates when they die.
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they → estimate → estates
In 2023-24, estates with a valuation of £10m only paid an average effective inheritance tax rate of 18%, according to estimates from HM Revenue and Customs.
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estates → pay → Revenue
Responding to Wednesday's conference announcement, the IFS said: "The biggest beneficiaries would be those with the highest wealth and the most valuable homes – and their descendants.
"
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beneficiaries → respond → wealth
This is a very well-off group, mainly living in London and the South-East of England."
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This → live → England
The Office for Budget Responsibility (OBR), the official forecaster, estimates inheritance tax will raise £9.5bn in 2026-27 - equivalent to around 0.3% of GDP.
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tax → estimate → GDP
The OBR projects this will rise to £14.5bn in 2030-31 or 0.4% of GDP.
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this → project → GDP
The Conservatives estimate their plan would cost £6bn a year in 2029-30, based on Oxford Economics' analysis.
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plan → estimate → analysis
The party says it has identified £71bn in annual savings including £36bn a year from welfare cuts.
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it → say → cuts
Prof Andy Summers, director of the Centre for the Analysis of Taxation, told BBC Verify this was "just about about the worst possible way to deliver an inheritance tax cut".
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this → tell → cut
"Exempting the family home however much it's worth will just encourage older people to concentrate their savings in their home, prevent downsizing, and so further gum up the housing market," he said.
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he → exempt → market
The Conservatives argue in their press release accompanying the policy announcement that inheritance taxes are "bad for growth".
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taxes → argue → growth
But analysis by the Organisation for Economic Co-operation and Development suggests inheritance taxes in general are less damaging to economic growth than taxes on income from work.
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taxes → suggest → work
The Aporia
