Households could face bills of up to £120,000 under a potential rule change being considered by Labour MP Andy Burnham. The proposal would remove the capital gains tax (CGT) “uplift on death” rules, meaning the lifetime gains of an asset, such as property, would be subject to tax.
How the current system works
Currently, when a person dies, the value of their asset is “uplifted” to the market value at the time of their death. This means that any capital gains accrued during the owner’s lifetime are effectively wiped out for tax purposes. However, scrapping this uplift would mean that beneficiaries would be liable for CGT on the increase in value that occurred during the deceased’s lifetime.
Potential tax bills for families
According to wealth manager Rathbones, a family inheriting a home that has increased in value by £500,000 over 25 years could face a CGT bill of £119,280, assuming the current 24% CGT rate. For inherited assets with lifetime gains of £150,000, the CGT liability would be £35,280, rising to £71,280 on gains of £300,000.
Ed Wood, financial planning director at Rathbones, said the change could come as families are already preparing for inheritance tax reforms due to take effect next year. “For many families, the removal of CGT uplift on death would feel like a one-two punch,” he said. “Not only could inherited wealth be subject to inheritance tax, but beneficiaries could also face a CGT bill on gains that accrued during their loved one’s lifetime.”
Expert advice for investors
Kirsty Cartwright, Investment Director at Rathbones, said while speculation over tax changes had prompted useful planning discussions, investors should avoid allowing tax considerations alone to dictate investment decisions. “The key is not to let the tax tail wag the investment dog,” she said. “Whatever policy changes may come, making full use of available allowances and tax-efficient wrappers such as ISAs and pensions remains as important as ever.”
Background on the proposal
Andy Burnham, the newly elected Labour MP for Makerfield, and his allies have reportedly been mulling over changes to the CGT “uplift on death” rules. The proposal is seen as a potential “family home death tax” that could significantly increase the tax burden on households inheriting property.
