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

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

Inherited property could be subject to a capital gains tax (CGT) bill of almost £120,000 under reforms currently being discussed, according to analysis by wealth manager Rathbones. The proposals include abolishing the CGT uplift on death and aligning CGT rates with income tax rates.

Rathbones' analysis suggests that removing the CGT uplift could leave beneficiaries with a significant tax liability when selling an inherited family home that has increased in value by £500,000. Under current rules, assets are generally rebased for CGT purposes on death, which wipes out gains accrued during the deceased’s lifetime. If this relief is abolished, inherited assets would retain their original acquisition cost, potentially resulting in substantial tax bills for beneficiaries when those assets are sold.

The report also examines the impact of aligning CGT rates with income tax rates. According to Rathbones, an additional-rate taxpayer making a £50,000 gain could pay almost £10,000 more in tax, while a higher-rate taxpayer could face an increase of more than £7,500.

Rathbones provided estimates for CGT liabilities at a 24% rate:

• For a £150,000 gain: £35,280
• For a £300,000 gain: £71,280
• For a £500,000 gain: £119,280

The analysis highlights that a family inheriting a property that has risen in value by £500,000 over 25 years could face a CGT bill approaching £120,000 when the property is sold.

The potential removal of the CGT uplift on death comes as changes to inheritance tax are also planned, including bringing unused pension funds within the scope of inheritance tax from April 2027. The report notes that removing the CGT uplift could create additional administrative challenges for executors, who may need to reconstruct decades of ownership history and calculate original acquisition costs, adding complexity and potential delays to estate administration.

These proposed changes are relevant for UK letting agents and inventory clerks, as they could affect the sale and transfer of inherited properties, potentially increasing the administrative burden and impacting the property market.