The Treasury is weighing in on proposals that could see beneficiaries facing tax bills of up to £120,000 when selling inherited homes. Wealth manager Rathbones' research highlights the impact of two potential policy shifts: scrapping the capital gains tax uplift on death and aligning CGT rates with income tax bands.
Rathbones' analysis shows that if the current system is changed, beneficiaries would inherit the original acquisition cost for assets, leading to significant tax liabilities. For instance, a property with a £500,000 gain could generate a £119,280 tax bill at a 24% CGT rate. Similarly, aligning CGT rates with income tax bands could see additional-rate taxpayers facing a CGT rate of up to 45%, while higher-rate and basic-rate taxpayers would also experience increased bills.
According to Ed Wood, financial planning director at Rathbones, client enquiries regarding CGT have surged due to speculation about potential fiscal measures. He warns that removing the CGT uplift on death could create substantial administrative burdens for executors, requiring them to reconstruct decades of ownership history and calculate costs for improvements made generations ago.
These proposals come as the property sector faces subdued transaction volumes and broader tax pressures affecting investors. Concerns have been raised about the potential negative impact on investment behaviour, with some suggesting that increased CGT burdens could deter private capital investment at a time when the UK economy requires growth.
The planned Inheritance Tax reforms, which will bring unused pension funds within IHT scope from April 2027, add to the tax pressures faced by property investors. The potential changes have sparked concerns about their impact on the property sector and the wider economy.