Tories pledge to remove IHT from primary residence and increase NRB

The Leader of the Opposition, Kemi Badenoch, has announced plans to cut inheritance tax (IHT) if the Conservatives win the next general election by removing family homes from the tax and increasing the nil-rate band (NRB).

At the Conservative Party Conference, Badenoch committed to excluding primary residences from IHT while increasing the NRB to £500,000 per person, enabling a couple to pass on £1m of assets as well as their home without paying IHT.

Badenoch made the pledge to reduce IHT following a fifth consecutive record year for IHT take, which hit £8.5bn in the 2025/26 tax year.

In her speech, Badenoch stated that “the next Conservative government will legislate so nobody will ever pay IHT on their family home”.

She claimed that the number of families paying IHT would more than halve as a result of the proposed changes, and said she wanted to abolish IHT outright when it could be afforded.

Oxford Economics estimated that the reforms would cost around £6.6bn in 2029/30.

“These potential changes do not come cheap,” said AJ Bell head of public policy, Rachel Vahey.

“Badenoch says that gap can be filled through welfare cuts, but delivering those savings is far easier said than done.

“On top of that there is a real risk the policy simply becomes viewed as a blatant transfer of wealth from low-income and vulnerable families to larger estates.

“The fundamental problem is that IHT is becoming more common, and a tax paid by more estates, while remaining deeply unpopular. As its reach expands, so will the pressure for change.”

Broadstone head of personal financial planning, Rob Hillock, added: “The issue is about to become much more salient given that from April 2027, most unused pension funds and death benefits will be brought within the value of an estate for IHT purposes.

“For many households, pensions represent one of their largest assets, so this change will fundamentally alter the way people need to think about retirement and estate planning.”

HMRC has estimated that approximately 38,500 estates would pay more in IHT in 2027/28 due to the pension reforms, which Hillock said demonstrated the potentially significant impact of the change on families with pension wealth.

“A cut to the headline IHT rate or an increase in the thresholds would therefore offer relief for families who may be impacted, particularly as IHT becomes a more tangible concern for households with significant property and pension wealth,” he continued.

“Above all, families need clarity and consistency on the future direction of IHT. Retirement and estate planning are long-term decisions, often made over many years, and repeated changes to the tax treatment of pensions and inherited wealth make that planning much harder.”

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