UK homeowners are bracing for potential significant tax increases following reports of plans to abolish the capital gains tax (CGT) uplift on inherited assets. This move, which critics have controversially labelled a 'family home death tax', could disproportionately affect middle-income households across the country.
Under the proposed reforms, which are reportedly being considered by allies of Andy Burnham as part of a broader review of wealth taxation, the long-standing rule that resets the value of inherited assets to their market value at the date of death would be scrapped. Instead, beneficiaries would inherit the original purchase price of the asset. This change would expose them to considerably larger CGT liabilities when they eventually decide to sell the inherited property or other assets.
Property professionals have voiced concerns that these changes could result in some families being subjected to both inheritance tax and capital gains tax on the same home. For instance, reports suggest a higher-rate taxpayer inheriting a property that has doubled in value over several decades could face an additional CGT bill exceeding GBP23,000 under these proposals. Louise Haigh, a close ally of Mr Burnham, has recently advocated for any tax system review to 'at a minimum' consider reforming this uplift, while Health Secretary Wes Streeting has previously suggested aligning CGT rates with income tax rates.
The current system allows for inherited assets to be revalued to their market worth at the time of death, meaning any gains accumulated during the deceased's lifetime are not subject to CGT. Tax is only levied on any increase in value that occurs after the asset has been inherited and subsequently sold. The uncertainty surrounding whether any CGT reform would be accompanied by wider changes to inheritance tax has heightened concerns that some estates could face a dual tax burden on the same assets. Begbies Chartered Accountants estimate that the combined impact of inheritance tax and CGT could, in certain circumstances, result in an effective tax rate of up to 62%, with the most significant impact likely on estates valued over GBP500,000 for individuals or GBP1 million for married couples and civil partners.
While supporters of abolishing the uplift, including organisations such as Tax Justice UK, Centax, and Fairer Share, argue that the existing rules incentivise individuals to hold onto appreciating assets until death to avoid CGT, others caution against unintended consequences. Andrew Brooker, tax director at Begbies Chartered Accountants, warned that removing the uplift without broader reform could 'gum up markets' by discouraging asset sales through very high tax rates. Olly Cheng, financial planning director at Rathbones, also questioned the practical substance of the proposals from a personal finance perspective.
The Institute for Fiscal Studies indicates that approximately 350,000 individuals pay capital gains tax annually, representing about 0.65% of the UK's adult population. Any significant alteration to these rules could therefore have a notable impact on a specific segment of the population, particularly those with inherited properties or substantial assets.
Source: Begbies Chartered Accountants, Evelyn Partners, Rathbones, Institute for Fiscal Studies