Raise inheritance-tax threshold to GBP 2m

Estate baseline

Reform's 2024 Contract proposed abolishing inheritance tax below GBP 2m and charging 20% above it. Current IHT raises several billion pounds a year and applies to a minority of estates.

• Most estates already pay no IHT.
• The threshold rise is very large.
• The rate above GBP 2m is halved.

Core trade-offs

Affected estates and heirs gain substantially, especially wealthier households. The Exchequer loses revenue and wealth concentration rises unless offset elsewhere.

• Heirs to larger estates gain directly.
• Treasury loses progressive tax receipts.
• Avoidance incentives may fall but remain material.

Illustrative fiscal impact

+GBP 3.0bn to +GBP 9.0bn. Central estimate: +GBP 5.5bn.

• Positive numbers mean public-finance pressure; negative numbers mean Exchequer savings.
• GBP 2m threshold is the main scale marker.
• Gross costs and receipt offsets are separated in methodology.
• Behaviour and pass-through widen the range.
• This is not an official costing.

Economic impact by 2027-28

• Jobs: No direct job effect; family-business cases are narrower than the full tax cut.
• Wages: No wage gain; benefits accrue through inheritances and wealth transfers.
• Prices: Could support asset demand, especially housing and private businesses.
• GDP / productivity: Likely small or negative if wealth tax revenue is replaced by broader taxes.

Assessment

This is a large cut to one of the more progressive parts of the tax system. It may reduce some avoidance and family-business liquidity problems, but the main gains go to relatively wealthy estates. The output effect is unlikely to be strongly positive, while the revenue loss is real and recurring.

Confidence: Medium-low. Receipts are known, but threshold and rate changes alter estate planning, gifting and asset behaviour.

Main risks

• Progressivity loss: Benefits concentrate among estates large enough to pay inheritance tax.
• Revenue replacement: Lost receipts must be replaced by borrowing, spending cuts or less progressive taxes.
• Asset effects: Lower taxation of inheritances may increase wealth concentration and asset demand.

Safeguards

• Publish estate-value distribution before legislating.
• Target business-liquidity issues directly.
• Retain anti-avoidance and trust rules.

Academic evidence

UK government evidence

Sources

• PolicyLens illustrative scenario methodology: Raise inheritance-tax threshold to GBP 2m Internal - PolicyLens, 2026
• The Elasticity of Taxable Income Academic article - Saez, Slemrod and Giertz, Journal of Economic Literature, 2012
• Direct effects of illustrative tax changes Official tax data - HM Revenue and Customs, 2026
• Our Contract with You Party policy document - Reform UK, 2024
• A Theory of Optimal Inheritance Taxation Academic article - Piketty and Saez, Econometrica, 2013
• Our Policies Party policy source - Reform UK, 2026

Other Reform UK policies

• Raise income-tax thresholds
• Cut household energy taxes
• Cut fuel duty by 20p
• Cut stamp duty below GBP 750,000
• Cut corporation tax to 15%
• Raise VAT threshold to GBP 150,000
• Abolish IR35 rules
• Replace some high-street business rates