Middle-income homeowners could be hit with thousands of pounds in extra tax under reported plans to scrap the capital gains tax (CGT) uplift on inherited assets, a move critics have branded a potential “family home death tax”.
The reforms, said to be under consideration by allies of Andy Burnham as part of a wider review of wealth taxation, would end the longstanding rule that resets the value of inherited assets at the date of death. Instead, beneficiaries would inherit the original purchase price, exposing them to significantly larger CGT bills when they eventually sell.
Property professionals have warned the changes could leave some families facing both inheritance tax and capital gains tax on the same home. Reports suggest a higher-rate taxpayer inheriting a property that has doubled in value over several decades could face an additional CGT bill of more than £23,000 under the proposals.
Louise Haigh, a close ally of Mr Burnham, recently argued that any review of the tax system should “at a minimum” consider reforming the uplift.
Health Secretary Wes Streeting, seen by some as a possible future chancellor under a Burnham-led government, has previously suggested CGT rates should be aligned with income tax rates.
Under the current system, inherited assets are rebased to their market value at the date of death, meaning gains accrued during the deceased’s lifetime are not subject to CGT. Tax is only payable on any increase in value after the asset has been inherited and subsequently sold.
It remains unclear whether any reform to CGT would be accompanied by wider changes to inheritance tax, prompting concerns that some estates could face both taxes on the same assets. According to Begbies Chartered Accountants, the combined effect of inheritance tax and CGT could, in some circumstances, produce an effective tax rate of up to 62%, with the greatest impact likely to fall on estates worth more than £500,000 for individuals or £1 million for married couples and civil partners.
Gary Smith, financial planning partner at Evelyn Partners, said such an outcome was “unlikely to go down well” with taxpayers.
Supporters of abolishing the uplift, including Tax Justice UK, Centax and Fairer Share, argue the current rules encourage people to retain appreciating assets until death to avoid CGT.
However, Andrew Brooker, tax director at Begbies Chartered Accountants, warned that removing the uplift without broader reform could have unintended consequences.
He said: “Discouraging asset sales through very high tax rates doesn’t make a great deal of economic sense either as it gums up markets.”
Olly Cheng, financial planning director at Rathbones, questioned the substance behind the proposals, commenting: “From a personal finance perspective, there was plenty of style but little substance.”
According to the Institute for Fiscal Studies, around 350,000 people pay capital gains tax each year, equivalent to roughly 0.65% of the UK’s adult population.
Comments (5)
No mention of Burnham’s land tax to replace council tax and paid only by home owners. Tenants will be exempt but it will be the responsibility of the landlord. I also read that landlords will not be allowed to raise rents to cover the land tax bill even though it may be 3 times council tax.
This Government is obsessed with taxation. It’s like they know their days are numbered.
Extreme left socialism at its finest.
Are you comparing Labour (middle right now) with communism? I think we are some distance from that. Hopefully we do not end up with far left or far right in charge of this country. We know where both end up.
Clearly our economy is going nowhere fast so tax is one of the few options available to any party. It is also clear our tax system needs to change so while I am not sure if their plans will work, the current system is archaic and only benefits the wealthy. The Duke of Westiminster inherited £8bill, guess how much he paid in tax?
When my parents die anything above the tax-free allowance will be hit with 40%. So why should I pay 40% and old Dukey pay 0%? If he had been taxed it would have been enough to cover most of the £5billion per year illegal immigration costs to UK tax payers. Just imagine, with a better tax system we could increase Border Control staff…
Taxing wealth (not work) will also provide the funds to build social housing to end the housing crisis – £10bill a year for 10 years. That is also one of the plans they are discussing. The thinking is that it will also stimulate the economy as it did after WW2, two birds.
Politics of envy again.
The Duke of Westminster’s money is tied up in trusts. The trust continues whoever is the Duke which is why he doesn’t pay IHT. You could do the same with your “riches”.