Potential changes to Capital Gains Tax (CGT) under an Andy Burnham Government could see families hit by a double tax bill on inherited property, according to a new report.
In recent tax policy debates Mr Burnham, who is in the running to become the next Prime Minister, mooted changes included the abolition of CGT uplift on death and the alignment of CGT rates with income tax rates.
Under current rules, assets are generally rebased for CGT purposes on death, meaning gains accrued during the deceased's lifetime are wiped out. If this relief were abolished and inherited assets retained their original acquisition cost, beneficiaries could face substantial tax liabilities when those assets are eventually sold.
Current CGT rates are 18% for many basic-rate taxpayers and 24% for higher and additional-rate taxpayers, with a £3,000 annual exemption.
Analysis by wealth manager and Financial Planner Rathbones found 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.
If CGT rates were increased to as much as 45% for additional-rate taxpayers, an additional-rate taxpayer making a £50,000 gain outside tax wrappers such as ISAs and pensions could face a tax bill of £21,150, compared with £11,280 under the current regime — an increase of £9,870.
Basic-rate taxpayers would also be affected, with the tax bill on a £10,000 gain rising from £1,260 to £1,400 if CGT rates were aligned with income tax rates.
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. 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.”