Conservative leader Kemi Badenoch has pledged to abolish inheritance tax on family homes and allow couples to pass on an additional £1mn tax-free if the party wins the next general election.
Badenoch used her keynote speech at the end of the Tory conference in Birmingham on Wednesday to try to cement its reputation as “the party of home ownership”, making the vow alongside existing promises to scrap stamp duty and the Labour government’s planned mansion tax.
She declared that the number of families paying inheritance tax would fall by more than half under her plan and attempted to draw a dividing line with UK Prime Minister Andy Burnham’s administration.
“Labour think it is selfish to pass on what you have earned to your children. We don’t,” she said. However, the risk of the pledge gumming up the housing market by disincentivising older people from selling up or downsizing was seized on by analysts.
Kemi Badenoch says Tories will end inheritance tax on family homes
Currently inheritance tax starts being paid on the value of estates above £325,000, plus an extra £175,000 allowance for residential property when passed on to children or grandchildren. The £325,000 threshold, in place since 2009, has been frozen until 2031.
Under Badenoch’s proposals, a “family home” passed on to direct descendants would not attract inheritance tax at all while the threshold would rise to £500,000 per person.
Party officials said the changes would cost £6bn, according to an analysis by Oxford Economics, and would be funded by welfare cuts and the reprioritisation of existing spending.
Inheritance tax was designed to ensnare only the “super wealthy”, but has become a levy on “ordinary middle-class families in every corner of our country” because the richest families have already “moved their money offshore and avoid the tax altogether”, said Badenoch.
She said she wanted to abolish the tax altogether eventually, but would not prioritise the move at present over her plans to create 50,000 new prison places, invest £10bn in a new integrated air-defence system to protect the UK from missile and drone attacks, and reduce the deficit.
Governing was about “tough choices”, Badenoch said.
Stuart Adam, senior economist at the Institute for Fiscal Studies think-tank, said the biggest beneficiaries would be those with the highest wealth and the most valuable homes, which would mainly be people living in London and the south-east.
“When put alongside the abolition of stamp duty on main homes and a cancellation of the ‘mansion tax’ it would push up the price of high-end housing, benefiting existing owners more than those who might buy such properties in future,” he added.
Faiza Shaheen, executive director at the Tax Justice UK campaign group, said it was “a reckless move by any politician that claims to be serious about getting Britain thriving” and “would take money from some of the poorest, to give to the wealthiest”, depriving public services of “vital cash”.
A Tory spokesperson said that allowing families to pass more wealth down the generations would encourage more people to continue pursuing wealth: “We value ambition. We value people that want to keep going.”
The spokesperson conceded that the move could “counter-balance” the effect that the Conservatives’ existing policy on scrapping stamp duty would have on freeing up the UK property market.
In a combative speech, Badenoch attacked Labour for increasing inheritance tax on farms, a move that then prime minister Sir Keir Starmer was forced to partially U-turn on. The higher levy “drove some farmers to take their own lives”, she said.
The Conservatives are currently in third place in the opinion polls on around 20 per cent, behind Reform UK in second place and the Labour Party in first.
She framed the political fight ahead as a “battle for the soul of the nation” and heaped criticism on the “dangerous” policies pursued by Burnham, recalling his past role serving in the shadow cabinet of hard-left Labour leader Jeremy Corbyn.
Badenoch said her party would aim to focus on the economy to boost growth, pare back red tape, create new jobs — including by halving employer national insurance on workers aged 21 to 24 — and cut welfare.
Criminals must face “proper accountability” and defence should be better funded, she argued.
In an appeal to Reform’s supporters, she said many were “our voters — we let them down and we want them to come back home”. Heaping censure on Nigel Farage’s “fishy” £5mn personal gift from a crypto billionaire, she sought to define her outfit against Reform UK.
“We are not like them, we are different, we are the Conservative Party,” she said.
In response to the inheritance tax pledge, Labour chair Bridget Phillipson said: “The Tories haven’t changed. Kemi Badenoch has shown that the Tories’ choice is to do nothing to help ordinary families struggling with the cost of social care, prioritising the wealthiest instead.”