Raise inheritance-tax threshold to GBP 2m: calculation note

Central fiscal result

+GBP 5.5bn - Net fiscal impact in 2027-28

Low case: +GBP 3.0bn. High case: +GBP 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 GBP 2m.
• A 20% rate applies above GBP 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 GBP 5.5bn after avoidance response.
• High case allows larger future pension-IHT relief.

Fiscal build-up, central case

• Threshold revenue loss: +GBP 4.5bn
• Rate cut above GBP 2m: +GBP 1.5bn
• Lower avoidance offset: -GBP 0.5bn
• Administration: +GBP 0.0bn

Central net impact: +GBP 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: +GBP 0.8bn. Preparation or partial implementation.
• 2027-28: +GBP 5.5bn. Main scenario year.
• 2028-29: +GBP 6.0bn. Behaviour and pass-through develop.
• 2029-30: +GBP 6.5bn. Steady-state uncertainty persists.

Main source groups

• S1: Reform Contract defines GBP 2m threshold and 20% rate.
• S2: HMRC ready-reckoners anchor IHT rate and band changes.
• S3: Inheritance-tax and taxable-income studies inform avoidance and distributional trade-offs.
• S4: Future pension-IHT changes create extra uncertainty.
• S5: No official Reform implementation date was found.