Conservatives pledge to scrap inheritance tax on the family home

The proclamation at the 2026 Conservative Party conference by their leader, Kemi Badenoch, that she will scrap Inheritance tax on family homes and allow couples to leave another £1 million tax free on death will be music to many people’s ears.

Admittedly, she will need to be elected first, and even then, the statement has been caveated by the comment “as soon as we can afford it”, so it means that this change could still be some way off if it happens at all, but this sort of measure would provide welcome relief against what is probably the most hated of UK taxes – Inheritance Tax.

How the current inheritance tax allowances work

In reality, whilst the vast majority of estates do not pay Inheritance Tax (about 5% of the total), but those that do have often be pushed into the Inheritance Tax net because rising house prices have not been matched by any increase in the tax-free Nil Rate Band, which has been static for almost two decades.

There are currently some additional allowances on top of the usual £325,000 per person Nil Rate Band for passing on the family home in the form of the Residential Nil Rate Band. This provides an additional relief of up to £175,000 which can only be used against the family home, but it comes with a number of conditions so it is not available to all – for example, childless individuals do not benefit, and those who’s total estate exceeds £2million will find the allowance reduced, potentially to zero.

As yet, details of what Ms Badenoch’s plans might look like are minimal so it is not clear if they would include restrictions and so this may just be a headline grabbing statement with minimal substance, so we can only speculate (we seem to be doing a lot of that lately).

If it does happen, what could that look like?

Statements in the press have said that it could cost up to £6 billion by 2029/30. Arguably a drop in the ocean, given current tax take and costs.

But could it end up costing more? Whenever there are reliefs, there is a tax planning opportunity. Introducing zero Inheritance Tax on the family home could tempt people to hold onto valuable property that they might otherwise have downsized from in a bid to maximise the relief. Currently Downsizing Relief seeks to prevent that by extending the tax-free allowance to those who downsize their property and hold other assets instead.

Downsizing by £250,000 might free up cash, but it can also convert an inheritance tax-free asset into a chargeable one, potentially creating £100,000 of extra inheritance tax for the next generation. Upsizing by the same amount could conversely reduce the eventual inheritance tax by a similar figure.

Could the proposals encourage people to buy bigger homes?

Another possibility is that this could potentially lead to some people upsizing, rather than holding alternative assets.  Historically, Business Property Relief (BPR) arrangements have seen people invest in qualifying assets that may not otherwise have been of interest. Now that relief is capped, will people turn to buying ever more lavish homes in later life?  Seems tempting… although it would need to be balanced with the so-called Mansion Tax. Perhaps that will get scrapped too? Even if it does not, the Inheritance Tax saving would probably outweigh the additional annual cost, even over a significant period of time.

Whilst it is easy to see how it could be abused, on the whole though, this seems to be a positive aim. Most agree that Inheritance Tax is a tax on tax and any reduction which may mean that families can pass a little more on to their loved ones can only be a good thing. If that is combined with a further £500,000 per person Inheritance Tax allowance (and let us hope that is not rolled out just for couples with children), this could be the most significant change to the Inheritance Tax landscape in decades.