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

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

Inherited property owners and investors could face significantly higher capital gains tax (CGT) bills if proposed reforms are introduced, according to analysis from wealth manager Rathbones, as reported by PropertyWire.

The research examines two potential policy changes: removing the CGT uplift on death and aligning CGT rates with income tax bands. Rathbones' analysis suggests that beneficiaries could face a tax bill of nearly £120,000 when selling an inherited family home that has appreciated by £500,000.

Removal of CGT Uplift on Death

Currently, assets are rebased for CGT purposes on death, which wipes out gains accumulated during the deceased's lifetime. If this relief were abolished, beneficiaries would inherit the original acquisition cost, resulting in tax liabilities when assets are sold. Rathbones' analysis, using a 24% CGT rate, shows that a property with a lifetime gain of £150,000 would generate a tax liability of £35,280, rising to £71,280 for a £300,000 gain and £119,280 for a £500,000 gain.

Alignment with Income Tax Rates

There is also speculation about aligning CGT rates with income tax rates, which could increase the rate to 45% for additional-rate taxpayers. Under this scenario, an additional-rate taxpayer realising a £50,000 gain would face a tax bill of £21,150, compared with £11,280 under current rates. Higher-rate taxpayers would see a £10,000 gain generate a £2,800 tax bill, up from £1,680, while a £50,000 gain would incur £18,800 in tax compared with £11,280 currently. Basic-rate taxpayers would also see increases, with a £10,000 gain rising from £1,260 to £1,400.

Administrative and Sector Implications

Rathbones highlighted potential administrative complications if the CGT uplift on death is removed, including the need for executors to reconstruct decades of ownership history and track down original purchase records. The analysis also notes that these potential tax changes add to challenges already facing the property sector, which has experienced subdued transaction volumes in recent months.

The government is considering various revenue-raising measures, with CGT viewed as a potential target. However, questions remain over whether higher rates would deliver anticipated revenue increases, as investor behaviour may adjust in response to tax changes.