Methodology note
Raise inheritance-tax threshold to £2m: calculation note
Assumptions behind the Raise inheritance-tax threshold to £2m scenario. Implementation detail is incomplete, so uncertainty is explicit.
View main policy page: Raise inheritance-tax threshold to £2m
Central fiscal result
+£5.5bn - Net fiscal impact in 2027-28
Low case: +£3.0bn. High case: +£9.0bn. Positive numbers are fiscal costs or borrowing pressure. Negative numbers are Exchequer savings or receipts.
Scenario and baseline
- Inheritance tax is abolished below £2m.
- A 20% rate applies above £2m.
- Current reliefs and trust rules are assumed unchanged.
- No replacement wealth tax is included.
Affected population
- Affected units are taxable estates and heirs.
- Most estates already pay no inheritance tax.
- Larger estates receive the largest cash gains.
- Family-business liquidity cases are only one subset.
Gross impact
- IHT receipts provide the outer scale of possible cost.
- HMRC ready-reckoners show band and rate changes are non-linear.
- Central cost is £5.5bn after avoidance response.
- High case allows larger future pension-IHT relief.
Fiscal build-up, central case
- Threshold revenue loss: +£4.5bn
- Rate cut above £2m: +£1.5bn
- Lower avoidance offset: -£0.5bn
- Administration: +£0.0bn
Central net impact: +£5.5bn in 2027-28.
Behaviour and pass-through
- Low case assumes lower rates reduce avoidance and gifting distortions.
- Central case assumes only modest avoidance recovery.
- High case assumes more estates leave the tax base after policy change.
- No growth dividend from inheritances is scored.
Phasing
- 2026-27: +£0.8bn. Preparation or partial implementation.
- 2027-28: +£5.5bn. Main scenario year.
- 2028-29: +£6.0bn. Behaviour and pass-through develop.
- 2029-30: +£6.5bn. Steady-state uncertainty persists.
Main source groups
- Saez, Slemrod and Giertz, "The Elasticity of Taxable Income" (Journal of Economic Literature, 2012): Tax responses can include avoidance and timing rather than large real activity effects; relevant to behavioural uncertainty in inheritance-tax revenue losses.
- HM Revenue and Customs, "Direct effects of illustrative tax changes" (2026): HMRC ready-reckoners show large revenue effects from income-tax, NI, VAT, fuel-duty and corporation-tax changes; primary fiscal scale anchor.
- Reform UK, "Our Contract with You" (2024): The Contract specifies thresholds, duties and business-tax proposals while claiming annual cost and saving totals; defines broad current tax pledges.
- Piketty and Saez, "A Theory of Optimal Inheritance Taxation" (Econometrica, 2013): Inheritance-tax design depends on bequest behaviour, wealth concentration and society’s redistribution preferences; frames the policy as a distributional choice, not just a family-tax cut.
- Reform UK, "Our Policies" (2026): Used to define the pledge wording, policy scope and implementation scenario being modelled.