Capital gains tax raid could hit families with £120,000 bill | Personal Finance | Finance

Britain is about to get a new Prime Minister in Andy Burnham, but one thing doesn’t look set to change. Labour’s search for extra tax revenue is likely to continue.

Although nobody yet knows what Burnham will do, attention has already turned to Capital Gains Tax (CGT). Senior Labour figures including Louise Haigh and Wes Streeting have previously called for CGT rates to move closer to income tax.

There is also speculation that the long-standing CGT uplift on death could be scrapped.

Today, most assets are rebased for CGT when somebody dies, wiping out gains built up during their lifetime for tax purposes. If that was abolished, some families could end up paying both CGT and inheritance tax (IHT), creating a potential double tax hit.

Nothing has been announced and nobody knows what the new Government’s autumn Budget will contain, but analysis by wealth manager Rathbones suggests the sums involved could be eye-watering.

Rathbones calculates 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, possibly with IHT on top.

Its financial planning director, Ed Wood, said for affected families it would feel like “a one-two punch”.

“Add in the forthcoming inclusion of unused pension pots within IHT calculations, and a much larger slice of family wealth will end up in the taxman’s coffers.”

Wood said the problems wouldn’t stop there. “Removing CGT uplift on death could 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.

“For grieving families, the challenge may not just be paying the tax, but establishing how much tax is due in the first place.”

Rathbones also examined what might happen if CGT rates were brought into line with income tax rates.

At present, CGT is charged at 18% for many basic-rate taxpayers and 24% for higher and additional-rate taxpayers on most chargeable gains, after the £3,000 annual exemption has been used.

If rates were aligned with income tax, an additional-rate taxpayer making a £50,000 gain could see their CGT bill jump from £11,280 to £21,150, an increase of almost £10,000.

Wood said he had seen a rise in enquiries from worried clients and warned: “Further increases in the CGT burden could discourage investment.”

He added that higher rates might not even deliver the expected boost to the public finances if investors changed their behaviour.

Despite the headlines, experts say families shouldn’t rush into making major financial decisions before any changes are confirmed.

Joe Lytwyn, personal finance expert at thimbl, said it’s understandable people feel anxious about higher tax bills, but acting too quickly could prove costly. “Making rushed decisions about selling property, transferring assets or changing long-term financial plans based purely on speculation may do more harm than good.”

We’ve seen this happen before Reeves his first two shambolic Budgets. But with Labour desperate to hike taxes at every turn, it’s no wonder families are feeling edgy. The last thing we need is another pre-Budget speculative frenzy, but it unless Burnham acts to calm things down, it looks like that’s what we’re going to get.