By Jacob Reid | Updated on Oct 08, 2026 at 05:47 PM
The Conservatives’ plan to cut the number of Britons paying inheritance tax risks costing almost twice as much as the party estimates, a think tank warned
Leader Kemi Badenoch’s pledge to exempt family homes from inheritance tax and increase to £1 million ($1.3 million) the value of other assets that couples can bequeath tax-free was the centerpiece of her speech at the Conservatives’ conference on Wednesday. The party said the measure would cost £6 billion>
However, an analysis by Dan Neidle’s Tax Policy Associates put the actual cost at between £7.7 and £10.9 billion. The discrepancy arises because wealthy pensioners would be incentivized to stay in their homes rather than downsize and shift assets into housing to avoid paying inheritance tax.
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The Tories’ proposal could see between £60 billion and £110 billion moving from savings and investments into housing, according to the analysis, as well as reducing the number of million-pound homes on sale in London and the South East by between 3% and 6% each year.
It echoes a 2023 warning from the Institute for Fiscal Studies that any inheritance tax “should apply in the same way across all forms of wealth inherited” to avoid such distortions. When the Conservative government introduced a separate inheritance tax allowance for homes in 2015, it included a provision to stop the rule discouraging older people from moving to cheaper homes.
Shadow Chief Secretary to the Treasury Richard Fuller acknowledged “concerns” about distortions to the housing market in an interview with Times Radio on Thursday, saying the party’s ambition to abolish inheritance tax altogether would remove those effects.
Badenoch stopped short to endorsing the full abolition of IHT for now, on the grounds that the plan needed to be fully funded by savings the party has identified, largely from the welfare budget.
On Wednesday a Conservative spokesperson also said the party’s pledge to scrap stamp duty, a tax on homebuying, would effectively increase housing supply.
The inheritance tax proposal has been criticized for only benefiting the wealthiest, with Badenoch countering that the Conservatives “are and always have been the party of home ownership.”
Neidle’s calculations suggest that 90% of those who would benefit are in the richest 20% of the population, and two-thirds live in London or surrounding parts of the south east.