Editor's note: This brief was summarised by The Property AI Newsroom from a report by Mortgage Strategy. Read the original article for full details.

Inherited Homes Could Face £120,000 CGT Bill Under Proposed Reforms

Families inheriting property could face Capital Gains Tax (CGT) bills of nearly £120,000 if policymakers proceed with reforms to abolish the CGT uplift on death, according to analysis from Rathbones. The firm’s calculations indicate that beneficiaries may be liable for tax on gains accumulated during a relative’s lifetime when selling an inherited property.

Currently, inherited assets are generally rebased for CGT purposes at the time of death, which means any gains built up during the deceased’s lifetime are wiped out. Rathbones’ analysis suggests that removing this relief would mean beneficiaries inherit the original purchase price for tax purposes, significantly increasing the taxable gain when the asset is sold.

Rathbones estimates that a family inheriting a home that has increased in value by £500,000 over 25 years could face a CGT bill of £119,280, based on the current 24% CGT rate. For inherited assets with lifetime gains of £150,000, the CGT liability would be £35,280, rising to £71,280 on gains of £300,000.

The potential reform has emerged amid ongoing discussions about changes to CGT, with policymakers considering ways to raise additional tax revenues. The analysis also highlights practical challenges for executors, who may need to trace decades-old purchase records, calculate the cost of historic improvements, and establish original acquisition costs before estates can be settled.

Rathbones also examined the possible impact of aligning CGT rates with income tax rates, a reform that has been widely discussed. Under this scenario, additional-rate taxpayers could see the rate on capital gains rise from 24% to as much as 45%. On a taxable gain of £50,000 outside tax-efficient wrappers such as ISAs and pensions, the CGT bill would increase from £11,280 to £21,150. Higher-rate taxpayers would also face larger bills, with CGT on a £50,000 gain rising from £11,280 to £18,800.

Current CGT rates are 18% for many basic-rate taxpayers and 24% for higher and additional-rate taxpayers, with a £3,000 annual exemption. No changes to the regime have been announced.