Treasury Poised for Doubled Inheritance Tax Revenue as Public Backs Cuts

Inheritance tax receipts are projected to double within five years, reaching an estimated £15 billion by 2031, according to a new report by the think tank Onward. This significant increase from last year's £7 billion is expected unless reforms are implemented.

This projection comes as Kemi Badenoch, a prominent figure in the Conservative Party, unveiled plans to reduce the tax. These proposed reforms include exempting the family home from inheritance tax regardless of its value and allowing couples to pass on an additional £1 million in assets tax-free. Badenoch stated that the desire to pass on a family home is a fundamental human instinct that should not be subject to taxation.

Public opinion appears to favor these proposed changes. A YouGov poll of over 6,000 adults found that 61% support exempting the family home from inheritance tax, with only 18% opposed. Support was particularly strong among Conservative (85%) and Reform supporters, but also showed significant backing from Liberal Democrat voters (61% in favor) and even Labour supporters (48% in favor).

The Onward report highlights a sharp rise in the impact of inheritance tax, with receipts already reaching a record £7 billion. This increase is partly attributed to a prolonged freeze of the tax threshold, which Labour has extended until at least 2031. Further changes by Labour, such as the inclusion of certain farmland and pension pots in tax calculations, are expected to accelerate revenue growth.

By 2030, inheritance tax receipts are forecast to climb to £12.6 billion, affecting an estimated 52,000 estates—three times the proportion affected in 2009. The following year, revenues are anticipated to reach £15 billion.

Conservative shadow chancellor Andrew Griffith stated that inheritance tax, originally intended for the wealthy, has increasingly affected middle-income families. He reiterated the party's commitment to eliminating stamp duty, a 'Mansion Tax,' and inheritance tax, while enabling couples to pass on an additional £1 million tax-free. He claimed these measures would remove more than half of those currently liable for inheritance tax and prevent many more families from being impacted in the future.

The proposed Conservative plans are estimated to cost £6 billion annually, with funding primarily sourced from welfare cuts. However, some economists have raised concerns that the policy could incentivize older individuals to invest more heavily in property later in life, potentially increasing the overall cost. Dan Neidle of Tax Policy Associates suggested the cost could range from £7.7 billion to £10.9 billion, citing a potential 'perverse incentive' for people to 'upsize' their property to avoid tax. Conservative sources have downplayed these warnings, suggesting that individuals with sufficient assets are already utilizing tax professionals to manage their wealth.