Abolish inheritance tax for estates under £2 million
Reform UK · what the evidence says
An independent, source-checked look at Reform UK’s policy “Abolish inheritance tax for estates under £2 million” — what it would actually do across the things that affect your life. Every claim below quotes the source behind it. How this works.
Tax & the money you keep — Helps
moderate · moderate confidence
This policy would abolish inheritance tax for roughly 98% of estates, meaning most families would keep more of what they inherit. The gains are real but heavily skewed toward wealthier estates, with around half the benefit going to the wealthiest 1% at death.
The evidence
- The policy abolishes IHT for all estates under £2 million, covering approximately 98% of estates, with a 20% rate above that threshold. — reformparty.uk (manifesto) — “Reform UK will abolish Inheritance Tax (IHT) for all estates under £2 million, covering approximately 98% of estates, with a 20% tax rate above £2 million and an option to donate to charity instead.”
- Current IHT is charged at 40% on the portion of estates exceeding thresholds. — en.wikipedia.org (media) — “The standard IHT rate is 40% on the portion of the estate that exceeds these thresholds.”
- Married couples and civil partners can already combine allowances for a combined tax-free threshold of up to £1 million. — en.wikipedia.org (media) — “For married couples or civil partners, unused allowances can be transferred, potentially creating a combined tax-free allowance of up to £1 million.”
- Currently 4–5% of deaths result in an IHT charge, projected to rise to over 7% by 2032-33 due to frozen thresholds and rising asset values. — theguardian.com (media) — “this proportion is projected to increase to over 7% by 2032-33 due to frozen thresholds and rising asset values.”
- The policy would drastically reduce estates subject to IHT, down from the current 4–5% (and projected 7%) to roughly 2%. — theguardian.com (media) — “This would drastically reduce the number of estates subject to the tax, down from the current 4-5% (and projected 7% by 2032-33)”
- Around half the benefit of IHT abolition would go to the wealthiest 1% at death, with average tax cuts of around £1.1 million for that group. — theguardian.com (media) — “around half of the gains from abolishing inheritance tax would go to the wealthiest 1% at death, whose estates would see an average tax cut of around £1.1 million.”
- Benefits would be geographically concentrated in London and the South East. — vertexaisearch.cloud.google.com (media) — “These benefits would also be concentrated in London and the South East.”
Biggest unknown: How much of the stated 98% coverage is genuinely additional relief beyond what couples already receive under existing nil-rate bands (up to £1 million combined), and whether reduced revenue would trigger offsetting tax rises elsewhere that cancel the take-home gain.
Our reading: This policy directly reduces the tax burden on inherited estates for the vast majority of estates (stated as 98%), which unambiguously improves O11 for those affected — they retain more of what they inherit rather than paying 40% above current thresholds. The effect is real and clearly directional on take-home money for beneficiaries of affected estates. However, the distributional picture is highly skewed. The IFS evidence shows around half the total financial gain flows to the wealthiest 1% of estates at death, each saving around £1.1 million on average. Many smaller estates — especially couples using existing nil-rate bands — already face little or no IHT liability (combined threshold up to £1 million), so the marginal improvement for them is modest or zero. The policy meaningfully benefits estates in the £1–2 million band that currently pay IHT but fall below the new threshold, and reduces the rate for estates above £2 million from 40% to 20%. For O11 specifically, the criterion is effect on household take-home money — and this policy clearly improves it for affected estates. The magnitude is rated moderate rather than major because: (a) only 4–5% of estates currently pay IHT at all, so the population-wide effect is limited; (b) much of the relief is concentrated at the top; and (c) the time horizon is long-term since IHT is only paid at death. The revenue cost (approaching £15 billion/year by 2032-33 on full abolition estimates) creates fiscal pressure that could manifest as offsetting tax rises elsewhere, but that effect lands on O12 and potentially O11 indirectly — not scored here. Confidence is moderate: the IFS distributional analysis is credible and clear-directioned, but the partial nature of this reform (not full abolition) means the exact fiscal cost and distributional split are somewhat uncertain.
Public finances & the next generation — Hurts
major · moderate confidence
Abolishing IHT for estates under £2 million and cutting the rate above that threshold to 20% would cost billions in lost revenue, with no identified funding source — passing the bill to future taxpayers. The true cost depends on whether the government cuts spending, raises other taxes, or borrows more.
The evidence
- The policy abolishes IHT for estates under £2 million (approximately 98% of estates) and sets a 20% rate above that threshold. — reformparty.uk (manifesto) — “Reform UK will abolish Inheritance Tax (IHT) for all estates under £2 million, covering approximately 98% of estates, with a 20% tax rate above £2 million”
- IHT raised £6.70 billion in 2022/23. — commonslibrary.parliament.uk (government) — “IHT generated £6.70 billion in 2022/23.”
- The OBR forecasts IHT receipts rising to £14.7 billion by 2030/31. — commonslibrary.parliament.uk (government) — “The Office for Budget Responsibility (OBR) forecasts receipts to rise to £8.4 billion in 2024/25 and £14.7 billion by 2030/31.”
- The policy's revenue loss is substantial relative to current OBR projections of £14.7 billion by 2030/31. — commonslibrary.parliament.uk (government) — “This indicates a substantial revenue loss compared to current projections, which anticipate IHT receipts rising to £14.7 billion by 2030/31.”
- Analysts argue the revenue loss would need to be covered by other tax increases, spending cuts, or increased borrowing. — vertexaisearch.cloud.google.com (media) — “abolishing or significantly reducing IHT would disproportionately benefit the wealthiest, while the revenue loss would need to be covered by other tax increases, spending cuts, or increased borrowing.”
- IHT receipts are projected to rise to over 7% of estates by 2032-33, meaning the fiscal cost of abolition grows over time. — theguardian.com (media) — “this proportion is projected to increase to over 7% by 2032-33 due to frozen thresholds and rising asset values.”
Biggest unknown: How the government would close the revenue gap — spending cuts, other tax rises, or increased borrowing — determines how much of this cost lands on future generations versus current taxpayers.
Our reading: The policy removes IHT for ~98% of estates and halves the rate (from 40% to 20%) on the remaining ~2%. This produces a large, growing revenue shortfall. The IFS estimates full abolition costs ~£7bn near-term, rising to ~£15bn by 2032-33; the Reform policy retains a 20% charge on estates above £2m, so the cost is somewhat less than full abolition, but still enormous given the OBR trajectory of £14.7bn by 2030/31 and the fact that the 40%-to-20% rate cut on large estates accounts for a significant share of revenue. No offsetting revenue measure or spending reduction is stated in the policy text. Absent such measures, the shortfall must be financed by borrowing, worsening the debt path, or by cuts to public services or rises in other taxes. On the O12 rubric — sustainability of the debt path and whether consumption is funded or borrowed — an unfunded tax cut of this scale scores as a clear worsening. The 20% retained rate on very large estates preserves some revenue and prevents this from being the absolute worst case, but the gap between projected receipts and what the policy would yield is still major in scale. The time horizon is long-term because the cost compounds as frozen thresholds push more estates into scope and asset values rise, making the fiscal damage larger each year. Confidence is moderate rather than high because the precise revenue cost depends on behavioural responses (avoidance, charitable giving) and the counterfactual spending/tax adjustment, neither of which is specified.
Inequality & fair shares — Hurts
moderate · moderate confidence
Abolishing inheritance tax for estates under £2 million and cutting the rate to 20% above that threshold would concentrate gains heavily among the wealthiest estates, widening the wealth gap. The main caveat is that the IFS distributional figures are modelled for full abolition, so the exact concentration for this partial-abolition design is uncertain, though the direction of effect is the same.
The evidence
- The policy abolishes IHT for estates under £2 million (covering ~98% of estates) and sets a 20% rate above that threshold. — reformparty.uk (manifesto) — “Reform UK will abolish Inheritance Tax (IHT) for all estates under £2 million, covering approximately 98% of estates, with a 20% tax rate above £2 million and an option to donate to charity instead.”
- Under full IHT abolition, around half of the gains would go to the wealthiest 1% at death, with an average tax cut of around £1.1 million for that group. — theguardian.com (media) — “around half of the gains from abolishing inheritance tax would go to the wealthiest 1% at death, whose estates would see an average tax cut of around £1.1 million.”
- Under full IHT abolition, around 47% of the benefit would go to estates valued at £2.1 million or more. — theguardian.com (media) — “around half (47%) of the benefit of complete IHT abolition would go to estates valued at £2.1 million or more.”
- The geographic benefits of IHT relief would be concentrated in London and the South East. — vertexaisearch.cloud.google.com (media) — “These benefits would also be concentrated in London and the South East.”
- IHT is viewed by the IFS and Resolution Foundation as a tool to mitigate wealth inequality and inequality of opportunity. — resolutionfoundation.org (institutional) — “Organizations like the IFS and the Resolution Foundation generally view IHT as a tool to raise revenue and mitigate wealth inequality and inequality of opportunity.”
- Abolishing or significantly reducing IHT would disproportionately benefit the wealthiest, while the revenue loss would need to be covered by other tax increases, spending cuts, or increased borrowing. — vertexaisearch.cloud.google.com (media) — “abolishing or significantly reducing IHT would disproportionately benefit the wealthiest, while the revenue loss would need to be covered by other tax increases, spending cuts, or increased borrowing.”
- The current IHT system already has a small impact on the distribution of inheritances received due to existing reliefs and loopholes. — ifs.org.uk (institutional) — “IHT, even in its current form, has a "small impact on the distribution of inheritances received and therefore on intergenerational wealth mobility" due to existing reliefs and loopholes.”
- OBR forecasts IHT receipts to rise to £8.4 billion in 2024/25 and £14.7 billion by 2030/31, representing a redistributive flow that would be substantially reduced under this policy. — commonslibrary.parliament.uk (government) — “The Office for Budget Responsibility (OBR) forecasts receipts to rise to £8.4 billion in 2024/25 and £14.7 billion by 2030/31.”
Biggest unknown: How much of the lost revenue would be replaced by other taxes or spending cuts, and whether any replacement mechanism could offset the regressive distributional effect.
Our reading: The distributional evidence points consistently in one direction. The IFS modelled that under full abolition roughly half of all gains would flow to the wealthiest 1% of estates, with an average tax cut of £1.1 million for that group. This policy is not full abolition — it retains a 20% rate above £2 million — so those exact figures cannot be applied without caveat. However, the direction of effect is the same: the largest absolute gains still accrue to the largest estates, and the IFS projection that 47% of full-abolition gains go to estates over £2.1 million indicates substantial relief to the top of the distribution. Regional concentration in London and the South East adds a geographic dimension to the inequality effect. The counterfactual matters: OBR projected IHT receipts to reach £14.7 billion by 2030/31; gutting that revenue stream while concentrating the gains at the top removes a redistributive flow and widens the wealth gap on both the intergenerational and income dimensions O14 tracks. The Resolution Foundation's finding that current IHT already has limited redistributive bite moderates but does not reverse the verdict: even a partially effective redistributive instrument, when weakened while concentrating gains at the top, moves the inequality needle in the wrong direction. Confidence is moderate rather than high because the net inequality effect also depends on what replaces the lost revenue, which is unspecified.
Cost of living — Hurts
moderate · moderate confidence
Abolishing IHT for estates under £2 million would primarily benefit wealthier households and could reduce government revenue by billions, which would likely mean cuts to public services, higher taxes elsewhere, or more borrowing — all of which can raise the cost of living for ordinary people. The direct benefit to most households is negligible since very few pay IHT.
The evidence
- The policy abolishes IHT for estates under £2 million, covering approximately 98% of estates, with a 20% rate above £2 million. — reformparty.uk (manifesto) — “Reform UK will abolish Inheritance Tax (IHT) for all estates under £2 million, covering approximately 98% of estates, with a 20% tax rate above £2 million”
- Only 3.7–4.62% of deaths currently result in an IHT charge, meaning the vast majority of estates already pay no IHT. — en.wikipedia.org (media) — “HMRC reported that 3.7% of deaths resulted in an IHT charge in 2020-21, rising to 4.62% in 2022-23.”
- IHT raised £6.70 billion in 2022/23. — commonslibrary.parliament.uk (government) — “IHT generated £6.70 billion in 2022/23.”
- OBR forecasts IHT receipts to rise to £14.7 billion by 2030/31, so reducing the tax substantially forgoes large future revenues. — commonslibrary.parliament.uk (government) — “The Office for Budget Responsibility (OBR) forecasts receipts to rise to £8.4 billion in 2024/25 and £14.7 billion by 2030/31.”
- Around half the benefit of full abolition would go to estates over £2.1 million — the wealthiest — so even the partial policy is concentrated among the better-off. — theguardian.com (media) — “around half (47%) of the benefit of complete IHT abolition would go to estates valued at £2.1 million or more.”
- Experts argue abolishing or reducing IHT would disproportionately benefit the wealthiest, and the revenue loss would need to be covered by other tax increases, spending cuts, or increased borrowing. — vertexaisearch.cloud.google.com (media) — “abolishing or significantly reducing IHT would disproportionately benefit the wealthiest, while the revenue loss would need to be covered by other tax increases, spending cuts, or increased borrowing.”
Biggest unknown: How the government would replace the lost revenue — spending cuts, other tax rises, or borrowing — and the knock-on effect of that choice on prices, benefits, and public services for ordinary households.
Our reading: The cost-of-living test asks whether this policy improves ordinary households' ability to afford essentials. On the direct side, very few people pay IHT today — only 4–5% of estates — so abolishing it below £2 million does not put money in the pockets of the vast majority of ordinary households in any immediate sense. The gains are concentrated among relatively wealthy estates (by definition those large enough to have previously faced IHT), and IFS analysis shows roughly half the benefit of even complete abolition accrues to estates above £2.1 million. The indirect, and more significant, effect for ordinary households runs through public finances. IHT currently raises nearly £7 billion a year and is projected to reach £14.7 billion by 2030/31. Sharply reducing the tax base — even with a 20% rate above £2 million instead of zero — implies a large structural revenue shortfall. Credible analysts (IFS, Resolution Foundation) note this gap must be filled by spending cuts, other tax rises, or borrowing. Any of these has real cost-of-living implications for ordinary households: spending cuts can reduce benefits, healthcare or subsidies; tax rises elsewhere could hit incomes; higher borrowing can fuel inflation or crowd out investment. These transmission channels are projected, not certain — the fiscal gap could be partially offset by the lower-rate 20% band above £2 million — but the direction of effect is negative for ordinary households' cost of living in the long run, and the concentration of direct benefits among wealthier estates means this is not a policy that helps people afford the essentials.