Kemi Badenoch\u2019s proposal would wipe out half of the \u00a315bn revenue inheritance tax is predicted to bring into the treasury by 2030-31. Photograph: Christopher Furlong\/Getty ImagesView image in fullscreenKemi Badenoch\u2019s proposal would wipe out half of the \u00a315bn revenue inheritance tax is predicted to bring into the treasury by 2030-31. Photograph: Christopher Furlong\/Getty ImagesAnalysisBadenoch\u2019s inheritance tax gambit makes no economic senseHeather StewartThe Tory leader\u2019s proposal to slash the tax would shovel \u00a36bn of taxpayer money to the already-wealthyKemi Badenoch\u2019s inheritance tax gambit is a Conservative classic. After all, it was George Osborne\u2019s high-profile pledge to \u201ctake the family home out of inheritance tax\u201d in 2007 that put Gordon Brown off calling a snap general election.In practice, Osborne\u2019s plan involved a \u00a31m threshold for inheritance tax \u2013 and given the global financial crisis had blown a hole in the public finances by the time the Conservative-Lib Dem coalition came to power in 2010, it never came to pass.But the promise was grabby enough to change the political conversation \u2013 and contributed to Brown\u2019s fateful decision not to go to the polls early.So politically, Badenoch\u2019s flagship policy may have merit.<\/p>\n
IHT, as policymakers call it, is notoriously unpopular. Families never likely to be liable nevertheless fret about their kids having to paying it, while a cacophony of highly paid tax advisers offer to help them avoid it.The furious response to Rachel Reeves\u2019s reform of the inheritance tax regime for family businesses and farms, with tractors streaming down Whitehall, underlined how unpopular it is.View image in fullscreenLabour\u2019s clash with farmers over inheritance tax saw eye-catching protests in London. Photograph: Jordan Pettitt\/PABut whatever its political logic, the Tory plan makes little economic sense. First, it\u2019s worth pausing to underline how very wealthy the beneficiaries of this new policy are likely to be.The latest data from HMRC shows that less than 5% of estates \u2013 the wealthiest 5%, that is \u2013 were liable for any inheritance tax at all in 2023\/24.And under current rules, by combining their tax-free allowances, a married couple can already pass on a property worth up to \u00a31m to their children or grandchildren, without them being liable to pay a penny in inheritance tax.Badenoch\u2019s new, much more generous regime would permit a couple to pass on the entire family home, however valuable, without paying any tax on it at all; and for good measure an additional \u00a31m in other assets.<\/p>\n
And the more valuable the property, the bigger the gain.Clearly, in a sluggish economy where resources are stretched, there\u2019s a question about whether that is the best use of the \u00a36bn of taxpayers\u2019 money the policy is reckoned to cost \u2013 compared to, say, investing in infrastructure where there might be the prospect of a return.Total revenue from IHT is forecast to be around \u00a39bn this year, rising to \u00a315bn by 2030-31 \u2013 Badenoch\u2019s plan would wipe out about half of that.Worse than that though, it 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 the taxman.skip past newsletter promotionafter newsletter promotionThe Tories claim they\u2019ll also abolish stamp duty, helping to oil the wheels of the property market and encourage downsizing; but for the most valuable homes, the benefits of not paying 40% inheritance tax above the current threshold would be likely to more than overwhelm the boon of a tax-free move.And that would be likely to mean far fewer family-sized homes coming on to the market in the places up-and-coming buyers most need them to be available.As Arun Advani, of the Centre for the Analysis of Taxation at the University of Warwick, points out, the biggest beneficiaries would be in areas where housing is expensive.He says: \u201c\u2018Where housing is expensive\u2019 mostly means \u2018where lots of people want to live\u2019, 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,\u201d he said.Indeed, he points out there would even be an incentive for those who can afford it to \u201cupsize\u201d \u2013 moving to a larger house, which would then effectively shelter the asset from inheritance tax.If Badenoch and her party want to shovel an additional \u00a36bn of taxpayers\u2019 money to the already-wealthy in the hope of winning back votes in the stockbroker belt, so be it \u2013 but she should not be able to claim the policy would be anything but bad for economic growth.Explore more on these topicsKemi BadenochConservativesanalysisShareReuse this content<\/p>\n","protected":false},"excerpt":{"rendered":"
Kemi Badenoch\u2019s proposal would wipe out half of the \u00a315bn revenue inheritance tax is predicted to bring into the treasury by 2030-31. Photograph: Christopher Furlong\/Getty ImagesView image in fullscreenKemi Badenoch\u2019s proposal would wipe out half\u2026<\/p>\n","protected":false},"author":1,"featured_media":25004,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-25003","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-politics"],"_links":{"self":[{"href":"https:\/\/demo.tcjhomeaccents.com\/wp\/wp-json\/wp\/v2\/posts\/25003","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/demo.tcjhomeaccents.com\/wp\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/demo.tcjhomeaccents.com\/wp\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/demo.tcjhomeaccents.com\/wp\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/demo.tcjhomeaccents.com\/wp\/wp-json\/wp\/v2\/comments?post=25003"}],"version-history":[{"count":0,"href":"https:\/\/demo.tcjhomeaccents.com\/wp\/wp-json\/wp\/v2\/posts\/25003\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/demo.tcjhomeaccents.com\/wp\/wp-json\/wp\/v2\/media\/25004"}],"wp:attachment":[{"href":"https:\/\/demo.tcjhomeaccents.com\/wp\/wp-json\/wp\/v2\/media?parent=25003"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/demo.tcjhomeaccents.com\/wp\/wp-json\/wp\/v2\/categories?post=25003"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/demo.tcjhomeaccents.com\/wp\/wp-json\/wp\/v2\/tags?post=25003"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}