Two major rule changes for Inheritance Tax could see UK families face a bumper £120,000 bill, say financial experts. Rathbones, one of the UK’s leading wealth and asset groups, has warned that mooted changes to Capital Gain Tax to align it with Income Tax rates could add nearly £10,000 to the tax bill on a £50,000 property value increase for additional rate taxpayers.
At the same time, the potential for Capital Gains Tax uplift on death being abolished could also add significantly to bills in what Rathbones called a ‘double blow’.
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 explains: “As speculation grows over potential changes to Capital Gains Tax (CGT) under an Andy Burnham government, new analysis from Rathbones reveals that investors and families could face significantly larger tax bills if key reforms are introduced.
The calculations examine two changes that have featured prominently in recent tax policy debates: the abolition of CGT uplift on death and the alignment of CGT rates with income tax rates. Current CGT rates are 18% for many basic-rate taxpayers and 24% for higher and additional-rate taxpayers, with a £3,000 annual exemption.
“The analysis shows that abolishing CGT uplift on death could leave beneficiaries facing a tax bill of almost £120,000 when selling an inherited family home that has risen in value by £500,000.
“Meanwhile, aligning CGT rates with income tax rates could increase the tax bill on a £50,000 gain by nearly £10,000 for additional-rate taxpayers and more than £7,500 for higher-rate taxpayers.”
Ed Wood, Financial Planning Director at Rathbones, says: “We’ve seen a significant increase in client enquiries about CGT as speculation grows over what fiscal measures a new government might consider to fund its economic agenda. With commitments made on the main tax levers, many investors see CGT as a potentially tempting area for area for policymakers looking to raise additional revenue.
“However, there is a risk that further increases in the CGT burden could discourage investment at a time when the UK needs private capital to turbocharge economic growth. There is also a question over whether higher rates would ultimately deliver the expected boost to the public finances, as investor behaviour often changes in response to tax increases.”