Badenoch's Family-Home Inheritance Tax Plan, Explained

Kemi Badenoch has promised to overhaul inheritance tax if the Conservatives win the next general election.

She told the party's annual conference on 7 October that nobody would pay inheritance tax on a family home and that couples could leave an additional £1m tax free BBC. The party's news page listed the commitment as Conservatives to Abolish Inheritance Tax on the Family Home. The additional £1m allowance was reported as equivalent to $1.3 million.

Inheritance tax is now charged at 40%. The charge applies only to the part of an estate above the threshold. Think of the threshold as a tax-free allowance. The standard allowance, called the nil-rate band, is £325,000. It can be transferred to a surviving spouse or civil partner, which gives a couple a combined £650,000 threshold. There are 2 nil-rate bands within the system.

The second is an additional £175,000 each, also transferable, where a family home is left to children or other direct descendants. Most married couples can therefore already leave up to £1m without liability.

The Conservative plan would raise the £325,000 threshold to £500,000 and remove a family home from the charge altogether. The structure beyond that was not set out in the verified material. The party gave one illustration. An estate centred on a £2m house that would now face a £400,000 bill would pay nothing under the plan BBC.

In 2024-25, about 30,400 deaths in the UK produced estates liable to the tax. That was around 5% of deaths in the year. The Conservatives, citing Oxford Economics analysis, said the number paying will reach 52,100 in 2029-30 without reform. The Institute for Fiscal Studies has estimated that by 2032-33 about 12% of people will face inheritance tax on their own death or that of a spouse or civil partner. The party estimated its reforms would cut the number of affected estates in 2030 to 22,000.

The Office for Budget Responsibility estimates inheritance tax will raise £9.5bn in 2026-27, about 0.3% of GDP. It projects revenue rising to £14.5bn in 2030-31, or 0.4% of GDP. The Conservatives put the cost of their plan at £6bn a year in 2029-30, based on Oxford Economics analysis. They said the sum would be covered from £71bn of annual savings, including £36bn a year from welfare cuts BBC.

The Institute for Fiscal Studies has estimated that outright abolition would deliver half the benefit to the wealthiest 1% of estates, those worth £2.1m or more. HM Revenue and Customs estimates show estates valued at £10m paid an average effective rate of 18% in 2023-24, below the 40% headline rate because of reliefs and planning. On this plan, the IFS said the largest gains would go to those with the highest wealth and most valuable homes, and to their descendants, largely in London and the South East of England.

The broader context here will be familiar to tax specialists. Thresholds have been frozen while asset values have risen. Fiscal drag, where frozen limits pull more estates into tax as prices rise, adds cases each year. Ministers get steady revenue growth for little parliamentary effort. Opposition parties get a grievance with motivated, if relatively affluent, voters attached. Badenoch is choosing to price a targeted cut for that group and to link it explicitly to welfare savings. For practitioners, the questions will be definitional. What counts as a family home. How the exemption interacts with the residence nil-rate band. And whether transferability survives in its current form.