Research shows plans to increase threshold at which tax is paid will overwhelmingly benefit rich families in south-east England

This article is more than 3 years old

This article is more than 3 years old

A £1bn Conservative inheritance tax cut will exacerbate the north-south divide, an MP has warned, as figures lay bare the winners and losers of a flagship government policy.

People inheriting homes in constituencies in London and south-east England will gain the lion’s share of the benefits from the tax cut, according to research commissioned by the Labour MP Rachel Reeves.

Cutting inheritance tax now exposes a warped sense of priorities | Rachel Reeves Read more

Of the 100 constituencies that will benefit the most, 96 are in London or the south-east and are mostly held by Tories, with 31 in and around London held by Labour.

“These new figures reveal the government’s inheritance tax giveaway will only benefit a wealthy elite in London and the south-east at the expense of the rest of the country,” said Reeves, who sits on the Treasury select committee.

The policy, which will be implemented from April, will benefit families with homes worth more than £650,000. It amounts to a tax giveaway of £38,400 for each of the estates affected, according to the figures.

The four remaining seats in the top 100 are all Conservative-held, including Tatton in Cheshire, which is represented by George Osborne – who announced the policy when he was chancellor.



Other big winners include his successor, Philip Hammond, with18.3% of homes sold in Runnymede and Weybridge in 2015-16 worth more than £650,000; and Theresa May, who represents Maidenhead where the figure is 20%.

In Reeves’ Leeds West constituency, 0.2% of homes sold in 2015-16 were in that bracket, amounting to six properties.

“One of the very few exceptions where people in the north will gain is the seat of the former Tory chancellor George Osborne, who came up with this unjust tax change,” she said. “Philip Hammond should use his budget to scrap this unfair and deeply flawed plan that will only deepen the north-south divide.”



She said that pressing ahead with the plans would show a “skewed sense of priorities” and make a “total sham” of the Conservatives’ claim to be on the side of working families who were just about managing.

The research, carried out by the House of Commons’ library, showed that the four constituencies in the top 100 outside the south-east were Tatton (12.5%), Bath (13.4%), Altrincham and Sale West (10.3%) and Stratford-upon-Avon (8.1%).

The cabinet ministers Michael Fallon, Justine Greening, Jeremy Hunt and Chris Grayling all represent areas where more than a 20% of homes sold were above the £650,000 threshold.

However, high-profile Labour MPs also represent some London constituencies with large proportions of high-value properties, including Jeremy Corbyn’s Islington North.

The revelations will prove uncomfortable for ministers given May’s determination to paint her government as being on the side of ordinary working families. She has also said she wants to rebalance the economy through an active industrial strategy focused on areas outside the south-east.

However, Conservative sources pointed out that the policy was included in the party’s 2015 election manifesto from which it secured a majority government, and party MPs insisted it was the right move.

Graham Brady, whose Altrincham and Sale constituency is in the top 100, argued that inheritance tax was unfair, particularly in areas with high property values.

“People have been taxed on their income, and they should not face penal tax charges when they leave something to their children,” he said. “It is worth saying that the lesson of recent decades is that, if this tax was left unreformed more and more families around the country would be sucked into it when it was originally intended for the very wealthiest.”

Hammond’s budget will aim to tackle long-term problems in society, including low productivity and the funding of social care. He is also expected to respond to Conservative pressure to reconsider changes to business rates.

A Treasury spokesperson made clear the inheritance tax policy was not likely to change.

“The government wants families to be able to pass on their home to their children or grandchildren,” she said. “That’s why, in line with the manifesto commitment, we’re reforming the rules to bring down the number of families paying inheritance tax from next year, with nearly 20,000 estates taken out of paying inheritance tax from April 2020 alone.



“Under the new system families will have a new £175,000 inheritance tax allowance for their home on top of the existing £325,000 threshold.”

Carl Emmerson, the deputy director of the Institute for Fiscal Studies, said the policy, under which the threshold will reach its final level in 2020, would benefit the wealthy.

“When fully in place, the biggest beneficiaries of this tax cut will be those whose parents are married and have an estate worth between £1m and £2m,” he said. “This small number of typically well-off individuals will see a £140,000 reduction in their inheritance tax bill.”