Burnham's CGT Alignment Proposal Sparks Warning
Andy Burnham, the newly elected Labour MP for Makerfield and former Greater Manchester Mayor, is reportedly planning to overhaul capital gains tax (CGT) by aligning rates with income tax brackets. This could result in a tax bill of up to £23,280 for individuals selling inherited homes worth £200,000, according to financial experts.
Proposed Changes to CGT Rates
The Labour Party, under Burnham's potential leadership, is considering hiking CGT rates to match income tax thresholds of 20%, 40%, or 45%. Currently, CGT rates for residential property are 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. Aligning these with income tax would significantly increase the tax burden on asset sales.
Louise Haigh, a Burnham ally, stated: "This reform is central to restoring confidence that the system does not favour those able to structure their income over those earning through work." She added: "At a minimum, reforms should address specific loopholes, such as the capital gains tax uplift at death, which allows unrealised gains to escape taxation entirely."
Impact on Inherited Properties
Evelyn Partners, a wealth management firm, illustrated the potential impact with an example. If a mother bought her house for £100,000 and it appreciated to £200,000 by her death, under current rules, the inheritor receives a base cost of £200,000. Selling at that price incurs no CGT. However, if the uplift at death is removed, the base cost remains £100,000. Selling for £200,000 yields a taxable gain of £97,000 after deducting the £3,000 annual CGT allowance. At current rates, this results in a tax bill of £17,460 (18%) or £23,280 (24%). If rates rise further, the bill would be even higher.
Concerns Over Investment Disincentives
Jason Hollands, managing director at Evelyn Partners, warned: "Punitive CGT rates risk becoming self-defeating because investors delay disposals, retain assets they might otherwise sell, restructure their affairs or reduce investment activity altogether." He added: "If the UK were to move towards rates of 40% or 45% for higher rates of CGT, it would risk becoming significantly less competitive than many comparable European countries. That would discourage investment, entrepreneurship, and the recycling of capital into new businesses and productive opportunities."
Political Context
Burnham's team is reportedly mulling these changes as part of a broader tax reform agenda. The proposal aims to shift the taxation burden away from income and towards capital gains, but critics argue it could dampen economic activity. The Labour Party has not officially confirmed the plans, but speculation is mounting ahead of a potential general election.
