The Conservative Party’s proposal to exempt family homes from inheritance tax regardless of value has raised concerns among tax experts and economists about potential distortions in the housing market and a much higher cost to public finances than estimated by party officials.

Announced by Conservative leader Kemi Badenoch during the party conference on Wednesday, the plan aims to allow children to inherit their parents’ homes tax-free, a move the Tories say would cost the Treasury around £6 billion annually. The party argued this policy would prevent many families from being forced to sell their homes to cover death duties and address what they described as a “postcode lottery” caused by rising property prices over the past three decades.

However, some experts have warned the true financial impact could be significantly greater. Tax lawyer Dan Neidle's analysis suggests the policy could cost up to £10.9 billion a year, factoring in behavioural changes such as older homeowners choosing to retain larger properties or even upsizing to maximize the tax exemption. Neidle highlighted that without the reform, downsizing does not affect the inheritance tax bill on the remaining home, but under the proposed rules, selling a higher-value house and purchasing a cheaper one would expose the released capital to inheritance tax, creating an incentive to maintain or acquire more valuable properties.

Arun Advani, professor of economics at the University of Warwick and director of the think tank CenTax, echoed these concerns, indicating that the exemption could reduce housing market mobility. He noted that once main homes are exempt from inheritance tax, older homeowners are likely to hold on to or upsize their properties, making it more difficult and costly for younger families to purchase larger homes, particularly in regions with high property values such as London and the southeast. Advani said the policy’s benefits would predominantly accrue to wealthier families in these areas, while prospective buyers might face fewer homes on the market.

The Conservative Party relied on research from Oxford Economics to project the policy’s £6 billion annual cost, but Neidle argued that behavioural responses could increase this figure by an additional £1.7 billion to £4.9 billion. The Tories countered that couples would also be able to pass on up to £1 million in cash tax-free, and denied that the plan would distort housing market dynamics.

Opposition voices criticised the inheritance tax proposal as an unfunded tax cut favoring the wealthy. Torsten Bell, the pensions minister, described it as a policy that underestimated its financial impact and disproportionately benefited affluent families. Danny Kruger of Reform UK characterized the plan as evidence that the Conservatives had abandoned traditional support bases in poorer industrial regions. The debate underscores the complexities surrounding tax policy, housing affordability, and intergenerational wealth transfer in the United Kingdom.