Families inheriting property could face a capital gains tax (CGT) bill approaching £120,000 if the new Labour government scraps the CGT uplift on death, according to analysis by wealth manager Rathbones. The potential change, which has been rumoured in Westminster, would remove the current tax-free rebasing of assets on death, meaning families could pay both CGT and inheritance tax (IHT) on the same assets.
What is the CGT uplift on death?
Currently, when someone dies, their assets are rebased for CGT purposes, wiping out any gains built up during their lifetime. This means beneficiaries inherit the assets at their market value at the date of death, and only pay CGT on future gains when they sell. If this uplift is scrapped, beneficiaries would inherit the original cost basis, and could face CGT on gains that accrued before the death, potentially alongside IHT.
Rathbones calculates that a family inheriting a property that rose in value by £500,000 over 25 years could face a CGT bill of nearly £120,000 when the property is sold, possibly with IHT on top. “For affected families, it would feel like a one-two punch,” said Ed Wood, financial planning director at Rathbones. “Add in the forthcoming inclusion of unused pension pots within IHT calculations, and a much larger slice of family wealth will end up in the taxman’s coffers.”
Administrative burden on executors
Wood warned that removing the CGT uplift on death could create a “paperwork nightmare” for executors. “They may be forced to reconstruct decades of ownership history, track down purchase records, calculate the cost of long-forgotten improvements and establish the original acquisition cost of assets that may have been held for generations. For grieving families, the challenge may not just be paying the tax, but establishing how much tax is due in the first place.”
Higher CGT rates could also be on the way
Senior Labour figures, including Louise Haigh and Wes Streeting, have previously called for CGT rates to move closer to income tax rates. Currently, CGT is charged at 18% for basic-rate taxpayers and 24% for higher and additional-rate taxpayers on most chargeable gains, after the £3,000 annual exemption. If rates were aligned with income tax, an additional-rate taxpayer making a £50,000 gain could see their CGT bill jump from £11,280 to £21,150 – an increase of almost £10,000.
Wood said he had seen a rise in enquiries from worried clients and warned that further increases could discourage investment. “Higher rates might not even deliver the expected boost to the public finances if investors change their behaviour,” he added.
Experts urge caution before making rushed decisions
Despite the speculation, financial experts advise against making hasty decisions. Joe Lytwyn, personal finance expert at thimbl, said: “It’s understandable people feel anxious about higher tax bills, but acting too quickly could prove costly. Making rushed decisions about selling property, transferring assets or changing long-term financial plans based purely on speculation may do more harm than good.”
Nothing has been confirmed ahead of the autumn Budget, but with Labour reportedly seeking extra tax revenue, families are bracing for potential changes. The last thing we need is another pre-Budget speculative frenzy, but unless Burnham acts to calm things down, it looks like that’s what we’re going to get.
