The most hated tax in Britain, and the least effective.
Scrap it, and replace it with a progressive tax that exempts family homes and businesses, and prevents avoidance. Simpler, fairer and everyone pays.
Inheritance tax raised £8.4 billion in 2024-25. The OBR expects £14.7 billion by 2030-31, not because anyone has voted for an increase, but because the thresholds have been frozen since 2009 and house prices have risen.
And despite a headline rate of 40%, the effective rate actually paid peaks at 25% on estates worth £3 million to £7.5 million, then falls to 17% on estates worth more than £10 million. The bigger the estate, the lower the rate. Business and agricultural reliefs alone cost the Treasury £1.8 billion a year.
Inheritance Tax is charged at 40%, a rate we apply to nothing else at that level. It falls on money that has already been taxed once, sometimes twice. It arrives at the worst possible moment, when a family is saying goodbye to someone for ever. And it is paid, overwhelmingly, by the people who did not plan.
How do the rich avoid it? Buy shares listed on AIM and hold them for two years, and they pass free under Business Property Relief. Buy farmland you will never walk on, and Agricultural Property Relief does the same. Write a life policy into trust. Give the money away and survive seven years. Every one of these is legal, every one is advertised, and every one is available only to people wealthy enough to take advice and healthy enough to plan ahead.
Roughly £53 billion of accrued capital gains pass at death in this country every year. Not one penny of it is ever taxed. When people die, the capital gains on everything they own is wiped clean, a rule known as the “capital gains uplift”.
Worse, the uplift distorts behaviour while people are alive. If people sell the second home at 75 they pay capital gains tax. If they hold it until they die, their heirs pay none. So the rational thing is to hold everything until death, which is exactly what people do. Economists call it the lock-in effect. In plain terms, our tax system pays older people to sit on assets that younger people need.
A tax that raises little, falls on the unprepared, and freezes capital in the hands of the elderly needs replacing.
The principle: tax what has never been taxed
Inheritance tax asks the wrong question. It asks what you are worth. The right question is what you never settled up on.
You buy a house for £90,000 in 1995. You die and it is worth £400,000. You have made £310,000, and you have paid tax on none of it. You buy shares for £60,000 and leave them worth £300,000. Same story. That growth is real income, accrued over a lifetime, and it has never once passed through the tax system.
Meanwhile the money in your current account has been taxed, as income, when you earned it.
My proposal for a new Inheritance Tax works the way Canada has worked since 1972. At death, everything you own is treated as though you had sold it. The growth is brought into charge for the first time. What was already taxed on the way in is not taxed again on the way out.
That single change does four things at once.
It removes the reason to hoard. If death triggers the same charge as a sale, holding an asset until people die is no longer worth more than selling it at 70. The lock-in effect disappears, and capital starts moving again.
It makes gifts simple. Canada has no gift tax and no seven-year rule. Neither would we. Give a child the deposit when they are 32 and they need it, rather than holding the cash until they are 60 and don’t. The tax treats the gift as a disposal at that moment, and the matter is closed.
It closes the loopholes by making them pointless. There is no advantage in AIM shares, because the tax follows the gain and not the asset class. There is no advantage in farmland you never visit, because owning it does not exempt it. There is no clock to survive.
And it is honest about what is being taxed. Not someone’s life’s accumulation. The part of it that has never been taxed at all.
The tax will fall on untaxed growth plus the liquid estate: cash, deposits and unspent pension pots.
How it works
Eight rules. That is the whole tax.
1. Nothing below £350,000
If the estate is worth less than £350,000, there is no tax and no return to file. Nothing to value, nothing to declare, nothing to pay.
The threshold is measured on the value of the estate, not on the calculation. It is the simplest possible test: add up what the person owned, and if it comes to less than £350,000, stop.
2. The first £50,000 of the charge is free
Above the threshold, the first £50,000 of the taxable amount is not charged at all. Together with the floor below it, the low entry rate and the cap in rule 7, this is what keeps the charge light on modest estates while the rates do their work higher up.
3. The family home is exempt
The growth on a principal private residence is not taxed. It is exempt up to £500,000 of gain, which covers effectively every ordinary family home in the country.
We do not tax your home while you live in it. If you sell your house tomorrow at a profit of £300,000, you pay nothing, because of Private Residence Relief. It would be strange to spend a lifetime telling people their home is the one asset the taxman leaves alone, and then take a slice of it the week they die.
Nobody keeps the receipts. Working out the true gain on a house means the purchase price, the extension in 1998, the new roof in 2007, the kitchen, the damp course, the legal fees. Over forty years, in a shoebox, for millions of estates. It is the single largest administrative burden a tax of this kind could create, and it would fall hardest on the least well advised.
It keeps people moving. A tax on the family home at death is a reason not to downsize, not to move for work, and not to sell the four-bedroom house that a family needs. That is the lock-in effect rebuilt inside a reform designed to remove it.
The heirs get the house whole. No probate scramble, no forced sale to raise a cash bill, no estate agent instructed in the fortnight after a funeral. The most resented single feature of the present tax simply disappears.
Above £500,000 of growth, the excess is charged. A house bought in Kensington for £180,000 in 1986 and worth £3 million today is not an ordinary family home, and the argument above does not stretch to cover it.
The Conservatives have now reached the same conclusion about the family home, and stopped there. At their conference on 7 October 2026, Kemi Badenoch promised that nobody will ever pay Inheritance Tax on their family home, with a further £1 million tax free for couples on top. She was explicit that abolishing the tax altogether is the ambition, when it can be afforded, and explicit too that she would not announce a cut without saying how it is paid for. That is a more serious position than the one her party held a year ago.
But it leaves the tax standing. Exempting the home and raising the allowance means fewer families pay, and every one of the avoidance routes survives untouched. The AIM shares still work. The farmland you never visit still works. The seven-year clock still runs. The estates that pay nothing today will carry on paying nothing, and the estates caught by the frozen thresholds will carry on being caught, just fewer of them.
So we agree on the family home and disagree on everything after it. Her proposal is a smaller version of the tax we have. Mine is a different tax: the home protected for the same reasons, the reliefs that make avoidance a profession abolished, the rate cut from 40 per cent to 20, and a charge that follows the gain rather than the asset class, which is what makes it impossible to plan around.
One of those positions can be undone by a future Chancellor looking for revenue in a bad year, because the machinery is all still there. The other cannot, because the machinery has gone.
4. Family businesses and working farms are exempt
A business or farm the family actually runs passes without charge. Not a portfolio dressed as a business. Not land bought as a shelter. The test is involvement: the family works in it.
This protects the thing Business Property Relief was invented to protect, and stops protecting the thing it was abused for.
5. Nothing passes between spouses
When the first of a couple dies, nothing is charged. The surviving spouse inherits the assets at their original cost, and the settlement happens at the second death.
No widow is handed a tax bill on the house she still lives in.
6. What is charged, and at what rate
The taxable amount is the untaxed growth on everything except the home and the family business, plus cash, deposits and unspent pension pots, less the £50,000 that is free.
First £250,000 at 20%.
£250,000 to £1.5 million at 35%.
£1.5 million to £5 million at 50%.
Above £5 million at 55%.
The entry rate is half of today’s 40 per cent. The rate rises at the top because at the top the current tax is largely voluntary, and this one is not.
7. No estate pays more than half of what lifts it over the line
A threshold creates an obvious unfairness: the estate just below it pays nothing and the estate just above it pays in full. So the bill can never exceed half of the amount by which the estate exceeds £350,000.
An estate of £380,000 pays at most £15,000. An estate of £450,000 pays at most £50,000. Higher up the cap stops binding and the normal calculation takes over.
The same device used to exist in corporation tax, and it does the same job here: nobody is ever worse off for having died slightly better off.
8. Gifts are settled when they are made
Give an asset away and it is treated as sold on that day, with the growth charged then. Give cash away and nothing happens at all, because cash has already been taxed.
There is no seven-year rule, no clock to survive, and no reason to sit on money people’s children need in their thirties until they are in their sixties.
Six estates, before and after
Here are a number of worked examples to illustrate how the new system works and will impact different people.
A widow’s flat and savings: £480,000. Today £0, Will pay £10,000.
A small house and some savings: £420,000. Today £0. Will pay £8,000.
A single person's house, savings and an ISA: £750,000. Today £100,000. Will pay £28,000.
A couple’s estate on the second death including house in London, portfolio, pension: £1,600,000. Today £240,000. Will pay £179,500.
An all-cash estate, no home: £800,000. Today £190,000. Will pay £225,000.
A family business, with a house alongside: £6,000,000. Today £670,000. Will pay £260,000.
A large estate: big house, portfolio, cash: £6,000,000. Today £2,270,000. Will pay £1,712,500.
The detail behind three of them.
The single person, £750,000. House worth £500,000, bought for £150,000. Savings of £150,000. An ISA of £100,000 that cost £60,000.
Today: allowances of £500,000, so £250,000 is taxed at 40 per cent. £100,000.
Under the new tax: the house is exempt, so the £350,000 of growth on it drops out entirely. The charge falls on the £150,000 of savings and the £40,000 of growth on the ISA, less the £50,000 that is free. That is £140,000 at 20 per cent. £28,000, a cut of nearly three quarters.
The couple’s estate, £1.6 million. House worth £900,000, bought for £250,000. A portfolio of £400,000 that cost £180,000. Cash of £200,000 and an unspent pension of £100,000.
Today, with both allowances transferred: £240,000.
Under the new tax: the home’s growth is exempt up to £500,000, leaving £150,000 of it in charge. Add the £220,000 of growth on the portfolio, the cash and the pension, take off the £50,000, and the charge is on £620,000. £179,500.
The family business, £6 million. A working business worth £4 million, a house worth £1.2 million bought for £400,000, a portfolio and cash of £600,000.
Today, with Business Property Relief: £670,000.
Under the new tax: the business is exempt because the family runs it. The house is exempt up to £500,000 of growth. £260,000.
What the examples show
Almost every estate with a family home pays substantially less, because the home leaves the calculation altogether. The single person above pays a quarter of what they pay now. The couple pays three quarters. The business pays less than half.
The estates that pay more are those holding large amounts of cash and no home, because cash is fully in the charge and there is no house to exempt. That is the deliberate consequence of taxing what is left rather than taxing property.
Looks like almost everyone wins! Well, the people who lose, if you can call it that, are those who currently avoid Inheritance Tax. Business and agricultural reliefs cost £1.8 billion a year, and much of that goes to people who bought into a relief rather than into a business. My scheme keeps the exemption for the families who actually run the firm or the farm, and withdraws it from everybody else.
Parity of tax take with today’s system
I have modelled this properly rather than asserting it. A synthetic population of 665,000 deaths a year sharing £110 billion of estate value, calibrated until it reproduced the actual yield of inheritance tax, then re-run under the rules above.
My new Inheritance Tax raises about £7.3 billion, against inheritance tax’s £8.4 billion. But there will be increased tax take elsewhere. How?
Remember the £53 billion of gains that currently vanish at death. Once death is a settlement rather than an amnesty, there is no longer a reason to hold assets until you die. People sell when it suits them, and those sales are taxable.
Where it shows up; On a cautious assumption; Annual estimate
Capital gains tax, as lock-in unwinds; A tenth of the £26 billion of non-home gains realised in life instead; £520m
Stamp duty, as downsizing restarts; 10,000 additional moves a year; £90m
VAT and consumption, as wealth arrives earlier; £10 billion reaching heirs in their thirties rather than their sixties, a quarter of it spent; £500m
Administration, for HMRC and for estates; Fewer valuations, fewer disputes, fewer returns; £100m
That is roughly £1.2 billion a year, and every figure is at the cautious end of the scale. On a less conservative view, it’s comfortably £2 billion a year. Net net that would raise more in a year than the system that is being replaced.
We know this effect is real. Canada’s system moves capital faster than ours, and it is the most consistent finding in the economics of capital taxation: if you stop paying people to sit on assets, they stop sitting on them.
And what it buys that does not show up in any figure
Simplicity. Two numbers per asset: what it cost, what it is worth. No reliefs to qualify for, no trusts to establish, no seven-year clock, no arguing with HMRC about whether a field is a farm. For most estates, the family home and the business are out of the calculation altogether.
Fairness. The present tax is flat at 40 per cent whether the estate is £600,000 or £60 million, and in practice largely optional at the top. This one rises with the size of the estate and cannot be planned around. The threshold, the home exemption, and the taper protect the less well-off; the rates rise at the top for those who can pay; and the reliefs that made avoidance a profession are gone.
Liquidity. Families inherit houses rather than tax bills. Capital moves to the generation that will spend and invest it, at the point in their lives when it does the most good.
Getting there from here
A tax on lifetime growth has to start somewhere, and asking a family to evidence what their grandfather paid for something in 1963 is not reasonable.
Assets are rebased to their market value in March 1982, as capital gains tax already does, so nothing before that date is ever in charge.
Where records genuinely do not exist, the cost is taken as 10 per cent of the value at death. Deliberately ungenerous, because the alternative rewards losing the paperwork.
Three years’ notice before it starts. Long enough for people to get advice, restructure if they want to, and understand what is coming. The family home is exempt, which removes the anxiety for the overwhelming majority of households from the day it is announced.
Existing gifts already running their seven years are honoured under the old rules. Nobody has the ground moved under a decision they have already taken.
Conclusion
We have a tax that raises £8.4 billion, is avoided by those who can afford advice, falls on those who cannot, jumps straight to 40% the moment it kicks in, and pays older people to sit on assets that the young need. At the same moment it collects that £8.4 billion, it waves through £53 billion of gains that have never been taxed at all.
Replace it with:
A progressive tax - the more you have, the more you pay;
An end to avoidance, which costs the Treasury £1.8 billion every year in business and agricultural reliefs alone; and
An end to a tax that damages family businesses and can render them unviable. Since April 2026 full relief stops at £2.5 million per person, with an effective 20% charge above it, payable whether or not the business has the cash.
Nothing below £350,000, and the first £50,000 of the charge free. The family home exempt, as it is in life. The family business exempt, as it should have been all along. Nothing between spouses. Growth and cash charged at 20% to begin with, rising to 55% at the top. No estate ever paying more than half of what lifts it over the line. Gifts settled when they are made, with no clock to survive.
Simpler to comply with, simpler to administer, impossible to plan around, and once the effects elsewhere are counted it raises what the current tax raises.
The present system taxes you for dying. This one asks estates to settle up at death, once, on what was never settled while that person was alive. Simple, fair and almost impossible to avoid.
𝚃𝚑𝚎 𝙾𝚗𝚎 𝙼𝚊𝚗 𝚃𝚑𝚒𝚗𝚔 𝚃𝚊𝚗𝚔