Tory pledge to exempt family homes from inheritance tax: what it would mean

Kemi Badenoch has pledged that a future Conservative government would remove family homes from inheritance tax and allow couples to leave an additional £1m tax-free, according to the BBC. This is a political proposal, not a change in law: you should still use existing allowances when assessing your estate.

What has Badenoch proposed for inheritance tax on family homes?

Speaking at the Conservative Party conference in Birmingham, Badenoch said a future Conservative government would legislate for the home exemption. The BBC reports that the £1m allowance for couples would sit alongside it, rather than represent a combined limit covering the home and other assets.

Badenoch claimed the measures would reduce every inheritance tax bill and cut the number of families paying the tax by more than half. These are claims about the proposed policy’s effects, not outcomes established by the announcement. The BBC report does not provide detailed calculations showing how different estates would fare.

According to the BBC, the Conservatives estimate the policy would cost around £6bn a year. The party says it has identified £71bn of potential government spending savings, including welfare cuts. The report does not supply a detailed breakdown matching those savings to the inheritance tax measures.

Badenoch also set out an ambition to abolish inheritance tax altogether. However, she said she could not currently propose full abolition because of spending commitments covering defence, prisons and the economy. Removing the tax entirely is therefore a separate ambition, not the specific home-and-allowance proposal announced.

How do existing inheritance tax allowances protect your home?

The £325,000 allowance and the extra home allowance

The basic inheritance tax allowance, known as the nil-rate band, is £325,000 per person. The standard tax rate is 40%, charged on the taxable amount above the available allowances rather than on the whole estate. As the BBC’s explainer notes, an estate includes property, money and possessions.

A separate residence nil-rate band can add up to £175,000 when a qualifying home passes to direct descendants, including children or grandchildren. That can bring one person’s total allowance to £500,000. It is not a blanket exemption for a property: its availability depends on who inherits and whether the relevant conditions are met.

The residence allowance is reduced by £1 for every £2 that an estate exceeds £2m. A valuable estate can therefore lose some or all of that additional protection. This matters when comparing today’s conditional allowance with the much broader home exemption described in Badenoch’s pledge.

Why some couples already have £1m of protection

Transfers between spouses or civil partners are generally exempt from inheritance tax. Unused percentages of the basic allowance and residence allowance can also transfer to the surviving spouse or civil partner. Where both allowances are available in full, that can allow a married couple or civil partners to pass on £1m tax-free between them.

The existing £1m figure should not be confused with the proposed additional £1m allowance. Today’s combined protection depends on marriage or civil partnership, transferable allowances and the conditions attached to the home allowance. Unmarried partners do not get the same spouse exemption or transferable allowances simply because they live together.

Lifetime gifts can also affect the calculation. Outright gifts to individuals generally fall outside your estate if you survive for seven years, but giving away your home while continuing to live there rent-free will normally leave it within your estate for inheritance tax purposes. Changing ownership is not, by itself, a way to remove the tax exposure.

Gifts to qualifying charities are exempt, and leaving enough to charity can reduce the inheritance tax rate on the relevant part of an estate from 40% to 36%. If your will uses a trust for charitable giving, our coverage of checking whether a charitable trust qualifies for relief explains why the arrangement deserves a separate review.

What do the BBC figures and political responses tell us?

The BBC reports that 4.72% of UK deaths in 2023-24 resulted in an inheritance tax charge, raising around £7bn for the government. That puts the proposal in context: most deaths did not generate a bill under the existing system. It does not establish whether your own estate will be taxable.

Badenoch argued that inheritance tax now affects ordinary middle-class families rather than only the very wealthy, according to the BBC. Her stated case for reform centres on protecting family wealth and reducing the number of estates caught by the tax. The report does not include an independent assessment of which households would gain most.

Labour chairwoman Bridget Phillipson criticised the proposal as favouring wealthier households while failing to help families facing social care costs. Reform UK economy spokesman Robert Jenrick also criticised its priorities, according to the BBC. These are political responses, rather than technical explanations of how the exemption would operate.

Liberal Democrat leader Sir Ed Davey questioned the funding behind the wider package of Conservative promises. For estate planning, that dispute underlines the difference between announcing a policy and establishing how it would be financed and legislated for. Neither the supporters’ claims nor the criticism changes the allowances currently available.

What should you check before changing your estate plans?

• Calculate your position under existing law. List your property, savings, investments and debts, then check which allowances and exemptions could apply. Do not deduct your home’s entire value on the assumption that the pledge will become law.
• Check who would inherit your home. The current residence allowance depends on qualifying descendants inheriting, not simply on the property being your main home. Review your will’s beneficiaries and any trust provisions before assuming you qualify for the extra £175,000.
• Check your whole estate, not just the property. Pension arrangements need their own review alongside savings and investments. Our coverage of pensions and inheritance tax planning explains why decisions about retirement money should not be driven by a single tax headline.
• Avoid transferring your home solely in response to the speech. Giving property away can mean losing control of it without removing it from your taxable estate. Take regulated financial advice or specialist legal advice before making an irreversible change.

What needs to happen before a family-home exemption could apply?

The BBC report gives no commencement date for the proposed inheritance tax exemption. Badenoch framed it as legislation for a future Conservative government, so the announcement itself creates no new entitlement for homeowners or deadline for executors. Anyone administering an estate must use the rules applicable to that death.

Important design questions remain unanswered in the report, including what would count as a family home and how joint ownership would be treated. It also does not explain whether the proposed allowance for couples would cover unmarried partners. Those details are essential before anyone can reliably calculate a potential saving.

Families would also need to know how a new exemption would interact with existing residence allowances, transferred allowances and homes held through trusts. A comparison would require published policy detail and, ultimately, legislation. Our inheritance tax news coverage follows developments affecting these estate-planning rules.