Key facts
- A potential Andy Burnham premiership is considering significant changes to capital gains tax (CGT).
- The proposed reforms include aligning CGT rates with income tax and abolishing the 'tax uplift on death'.
- Under current rules, assets receive a tax uplift upon death, wiping out lifetime gains.
- Removing this uplift could result in families facing substantial CGT bills on inherited assets.
- Analysis estimates a property appreciating by £500,000 could incur a CGT bill of approximately £120,000.
- Industry experts warn that increased CGT burdens may discourage investment.
Bereaved families could face substantial tax liabilities if Andy Burnham, a potential future Prime Minister, proceeds with plans to reform capital gains tax (CGT).
Supporters of Burnham, including Wes Streeting and Louise Haigh, have voiced beliefs that wealth in the UK is undertaxed and have called for CGT system reforms. Key proposals include aligning CGT rates with income tax and eliminating the 'tax uplift on death'. Currently, upon death, assets are revalued to their original acquisition cost, effectively wiping out accrued gains for CGT purposes.
Analysis from Rathbones suggests that removing this uplift could leave families with a significant tax bill. For instance, an inherited home that has increased in value by £500,000 over 25 years could face a CGT bill of approximately £120,000 if the current higher rate of 24% is applied. A property with a £300,000 gain might incur a bill of around £71,000.
Rathbones also expressed concern over aligning CGT with income tax rates, which could see higher-rate taxpayers facing a 45% rate on gains. This could increase the tax on a £50,000 gain outside tax wrappers by nearly £10,000, bringing the total bill to £21,150.
Industry figures have raised alarms that such changes could deter investment, potentially hindering the government's objective to boost domestic capital. Ed Wood, financial planning director at Rathbones, stated that higher CGT burdens might discourage investors, and questioned whether increased rates would truly boost public finances given potential shifts in investor behavior.