Economists at Rathbones have warned that abolishing the Capital Gains Tax (CGT) uplift on death could leave families with significant tax liabilities when selling inherited property. The proposed reform, currently under discussion, aims to scrap the current rule which allows assets to be rebased for CGT purposes on death, effectively wiping out gains accrued during the deceased's lifetime.
According to Rathbones' analysis, if the CGT uplift on death is abolished, beneficiaries could face a tax bill approaching £120,000 when selling a property that has risen in value by £500,000 over a 25-year period. This is assuming a 24% CGT rate.
The analysis also suggests that aligning CGT rates with income tax rates could substantially increase liabilities for investors. An additional-rate taxpayer making a £50,000 gain could pay almost £10,000 more in tax, while a higher-rate taxpayer could face an increase of more than £7,500.
The prospect of abolishing CGT uplift on death comes alongside planned inheritance tax changes that will bring unused pension funds within the scope of IHT from April 2027. Rathbones' financial planning director, Ed Wood, warned that removing the CGT uplift on death could create a 'one-two punch' for families, making it even more challenging to pass on intergenerational wealth.
With the potential for higher CGT rates, investors may be deterred from investing in the UK, just when the economy needs private capital to drive growth. As Wood pointed out, investor behaviour often changes in response to tax increases, which could ultimately undermine the expected boost to public finances.