Proposed Inheritance Tax Reforms Set to Slash State Revenue by £7.5 Billion

A new inheritance tax policy under consideration is forecast to significantly reduce government income, with projections indicating an annual loss of approximately £7.5 billion by the 2030-31 fiscal year. This figure represents half of the total expected receipts from inheritance tax, according to recent analyses.

The proposed changes would permit married couples to transfer primary residences without inheritance tax, regardless of their value. Additionally, these couples would be able to transfer an extra £1 million in other assets tax-free. Such a reform is primarily set to benefit the wealthiest 5% of estates, which currently incur inheritance tax liabilities.

Fiscal Risks and Housing Market Impact

Economic assessments suggest this policy creates a notable fiscal risk. Critics argue it prioritizes tax relief for high-net-worth individuals over crucial infrastructure investment. The proposal also introduces unintended incentives for older homeowners, who might be encouraged to retain valuable properties rather than moving to smaller homes.

This potential behavior could reduce the availability of family-sized housing in highly sought-after areas. Such a constraint on housing supply may, in turn, impede labor mobility and hinder regional economic development.

Policy Intentions and Broader Contradictions

While the policy aims to garner political support, it appears to contradict broader objectives related to maintaining fluidity within the housing market. The incentive to shield assets by retaining primary residences could potentially negate the positive effects intended by concurrent stamp duty reforms.

Consequently, the inheritance tax proposal faces criticism for its potential to worsen existing housing shortages and undermine the long-term stability of tax revenue streams.