The Conservative Party's mooted plan to abolish inheritance tax (IHT) on family homes, potentially taking effect from 2029 if the party wins the next general election, has come under fire from economists, unions, and campaign groups who warn the policy would create perverse housing market incentives and primarily benefit the wealthiest estates.
Conservative leader Kemi Badenoch has pledged to scrap IHT on family homes. However, critics argue the proposal could discourage older homeowners from downsizing, thereby reducing the supply of larger family homes in areas with strong job markets and harming economic growth.
Economists warn of 'perverse incentives' for older homeowners
Heather Stewart of The Guardian warned that the change "will create perverse incentives for older homeowners to do exactly what the economy needs them not to do, and hang on in a valuable property, for fear the proceeds of downsizing would be grabbed by HMRC."
Arun Advani, of the Centre for the Analysis of Taxation at the University of Warwick, added: "'Where housing is expensive' mostly means 'where lots of people want to live', usually because there are good jobs. Reducing housing sales here will make it harder for young working families trying to upsize. By staying put, they will in turn make it harder for school leavers and university/college graduates to move to the area for work. This is bad for growth."
Paul Johnson, the former head of the Institute for Fiscal Studies, told Sky News that getting rid of inheritance tax could turn out to be a "very, very bad policy" because it might stop older people selling their homes. It might give people "an even bigger incentive just to hold on to big homes for longer and longer," he said.
Tax Justice UK and TUC condemn the proposal
The campaign group Tax Justice UK has criticised Kemi Badenoch's speech. Faiza Shaheen, its executive director, said: "Cutting inheritance tax, as trillions of pounds is going to pass between generations, is a reckless move by any politician that claims to be serious about getting Britain thriving. This is a policy that would take money from some of the poorest, to give to the wealthiest. And it would deprive public services of vital cash when the pressures on delivery are increasingly acute."
Paul Nowak, general secretary of the TUC, also criticised the proposed inheritance tax cut. He said: "This is a tax paid only by the very richest estates – 95% pay no inheritance tax at all. Cutting it would do nothing for ordinary people. This is the same old Tory playbook: cutting taxes for their rich mates and leaving working people to pick up the bill. They are a party for inherited wealth, not workers."
Reform UK responds with rival tax pledge
Robert Jenrick, the former Tory who is now Reform UK's Treasury spokesperson, said: "As usual, Kemi has chickened out of doing anything big. Presumably, it's because she couldn't match Reform's pledge to resign if she doesn't deliver on her promises. While the Tory party is offering handouts to multi-millionaires, Reform will give everyone a £500 tax cut by raising the tax-free personal allowance to £15,000. The Tory party is looking after its own in Kensington, Reform is looking after the country. She's for the 2%, we're for 98%."
The proposal is being considered as part of the Conservative Party's platform ahead of the 2029 general election, with the party currently in opposition to the Labour government. No formal legislation has been introduced, and the policy remains a pledge subject to electoral approval.
