A Conservative reverse-Robin Hood
At this year's Conservative Party Conference, Kemi Badenoch made a decisive pitch to the wealthiest in society: abolish Inheritance Tax on the main home and raise the threshold that couples can pass down tax-free up to £1,000,000. This followed a pledge last year to abolish Stamp Duty on main homes, in what appears to be a clear strategy to win back affluent voters in the South East, who deserted the party for the Liberal Democrats in 2024. These two measures would cost billions of pounds – amounting to a huge bung for the wealthiest – paid for by savage cuts to public services. Independent analysis from Tax Policy Associates suggests the Inheritance Tax change could cost around £11bn a year, much higher than the £6bn figure publicised by Badenoch’s team.
Undoubtedly, Inheritance Tax is an emotive issue. People typically deal with it at the time of a loved one passing. And understandably, many of us want to ensure our children or any other dependents have financial security after we are gone. But the reality is this is a tax that less than one in twenty people pay - and those who do are overwhelmingly from the wealthiest in society. The threshold until you pay is £325,000, rising to £500,000 if a primary residence is included, with married couples and civil partners able to pass on any unused allowance, theoretically allowing up to £1m to pass on tax-free. It is only after these thresholds that any tax is paid. It currently raises around £8.5bn a year - the equivalent of putting 1p on each band of Income Tax.
Despite the headline rate being 40%, the effective rate paid is only 13% due to the high threshold for payment and various reliefs. This is well below the basic rate of Income Tax that working people pay. For the vast majority of people, they can leave life-changing amounts of money, and a family home, to their children or dependents, without any Inheritance Tax being paid whatsoever.
Looking at the Conservatives' proposal, the issue becomes even more pronounced than a tax cut for the wealthiest. Badenoch has proposed it would be paid for with savage cuts to welfare support - taking from some of the poorest and most marginalised people in society to give to the rich. A reverse Robin Hood that I doubt many would find palatable when understanding the reality of it pushing people further into poverty and deprivation.
The UK is also in a difficult fiscal position - high borrowing costs, growing national debt, and an aging population, meaning more money is needed for pensions, the NHS and social care. Then taking into account chronic underinvestment in infrastructure and the public realm - just look at the number of potholes. It is desperately apparent that cash is needed to fix much of what’s around us, to build a better-functioning Britain.
So the policy fails the fairness test - taking from the poor to give to the rich - and fails the fiscal test of affordability. But are these policies actually good for the economy and society? On that test, the policy fails again.
These two flagship policies will actually work decisively against the people the Conservative Party claims to stand for - professional middle-class families and aspiring homeowners. Scrapping Stamp Duty would lead to a surge in house prices as demand shoots up - you won’t need extra thousands in cash to make that house purchase and sellers and lenders know buyers will have more money for a deposit. Additionally, the Inheritance Tax exemption for the main home will likely mean older people don’t downsize - keeping larger family homes to retain the tax advantages, whilst wealthier pensioners pour money into expensive properties, pricing out ordinary people.
The combined effect of these policies is a huge tax cut for the wealthiest, savage cuts to public services, and sharp rises in house prices for those aspiring to home ownership - a disastrous proposal the UK cannot afford. There is a better way - replace Stamp Duty with an annual charge, getting the benefits of making moving home easier, whilst also keeping government revenue neutral and keeping house prices stable.
On Inheritance Tax, the European Commission has clear recommendations for designing a good Inheritance Tax system. It includes a high threshold for payment, a high progressive rate and no exemptions. Otherwise, the wealthiest will pour their money into what is exempt - in this case, property - leaving ordinary people to pick up the bill, and sucking resources into tax planning and accounting firms rather than the real economy.
In the UK, the very wealthiest in our society have managed to shield themselves and large parts of their estates from Inheritance Tax through the creation of trusts - special legal vehicles that enable them to pass on assets without paying tax on them. In short, trusts mean that assets are controlled by the beneficiary - but the beneficiary does not legally own them, so pays no tax upon inheritance. The Duke of Westminster inherited £9bn largely tax-free in 2016 using a trust - with many other cases like this. Trusts don’t operate like this in most countries - in France the benefactor of a trust, in this example the Duke of Westminster, is treated as the owner for tax and legal purposes - he could have paid up to a 60% inheritance tax rate if he was a French resident. The UK must move towards this system - scrapping this feudal relic so the wealthiest pay their fair share.
Finally - a party that really wants to tackle the financial anxieties older people and their children experience would look at fixing the crisis in social care rather than Inheritance Tax. Catastrophic social care costs are the real issue people face in their daily lives, often being a cause of selling a family home. The Coalition government legislated for a cap on care costs in 2014 - the Conservatives could have implemented this at any time but refused to do so. At this year’s conference, we heard nothing about social care. A party that really wants to look after older people and their children would be proposing a new vision for our care system, not giving a multi-billion-pound tax giveaway to the wealthiest.
Joe Wright is Policy and Advocacy Manager with Tax Justice UK, one of the leading voices for progressive tax reform in Britain. He previously worked for the Liberal Democrats and HM Treasury.
