Property owners and investors could face substantially higher capital gains tax bills on inherited assets if proposed reforms are implemented, according to analysis from wealth manager Rathbones.
The research examines two potential policy changes: removing the capital gains tax uplift on death and aligning CGT rates with income tax bands. The findings suggest 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
Under current legislation, assets are rebased for CGT purposes on death, effectively wiping out gains accumulated during the deceased’s lifetime. If this relief were abolished, beneficiaries would inherit the original acquisition cost, creating tax liabilities when assets are sold.
Rathbones’ analysis, assuming 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.
Ed Wood, financial planning director at Rathbones, said: “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.”
The potential changes come alongside planned inheritance tax reforms bringing unused pension funds within IHT scope from April 2027. This follows broader tax pressures affecting property investors across multiple sectors.
Alignment with income tax rates
Speculation has also emerged around aligning CGT rates with income tax rates, potentially increasing the rate to 45% for additional-rate taxpayers. An additional-rate taxpayer realising a £50,000 gain would face a tax bill of £21,150, compared with £11,280 under current rates—an increase of £9,870.
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 experience increases, with a £10,000 gain rising from £1,260 to £1,400.
Kirsty Cartwright, investment director at Rathbones, commented: “For higher and additional-rate taxpayers, aligning CGT rates with income tax rates could add thousands of pounds to the tax bill on a single disposal.”
Administrative challenges
Wood highlighted potential administrative complications: “Removing CGT uplift on death could also create a paperwork nightmare for executors, who may be forced to reconstruct decades of ownership history, track down purchase records, calculate the cost of long-forgotten improvements and establish the original acquisition cost of assets that may have been held for generations.”
The proposals have raised concerns about their impact on investment behaviour. Wood noted: “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.”
The potential tax changes add to challenges facing the property sector, which has already experienced subdued transaction volumes in recent months. Cartwright advised investors to avoid making decisions based solely on tax considerations, recommending the use of available allowances and tax-efficient wrappers such as ISAs and pensions.
The analysis comes as the government considers various revenue-raising measures, with CGT viewed as a potential target given commitments made on other tax levers. However, questions remain over whether higher rates would deliver anticipated revenue increases, as investor behaviour typically adjusts in response to tax changes.
