Millions of families across Britain could face tax bills of up to £96,000 under proposals reportedly being considered by allies of incoming Prime Minister Andy Burnham.
The plans could leave bereaved families paying capital gains tax on inherited assets that are currently exempt, significantly increasing the cost of passing on wealth.
Louise Haigh, a close ally of Mr Burnham and former Transport Secretary, recently argued in an essay that any review of the tax system should “at a minimum” include reform of the capital gains tax uplift on death.
Under the current system, inherited assets are reset to their market value when someone dies. This means beneficiaries usually pay capital gains tax only on any increase in value after they inherit the asset.
If the uplift was abolished, families could instead face tax on gains built up during the original owner’s lifetime.
Adam Sedgwick, tax director at Forbes Dawson, told GB News: “Removing the capital gains tax uplift on death may sound like a minor technical change, but for some families it could turn bereavement into a much bigger tax event.”
He gave the example of a buy-to-let property purchased for £100,000 that had risen in value to £500,000 by the owner’s death.
Under the current rules, selling the property shortly after inheriting it would generally trigger no capital gains tax. However, removing the uplift would leave the beneficiary with a taxable gain of £400,000.
Ignoring exemptions and allowances, that would result in a capital gains tax bill of around £96,000 at the current 24 per cent rate.
Mr Sedgwick warned the proposals could create a “double death tax” if inheritance tax continues to apply alongside capital gains tax.
“If introduced without wider inheritance tax reform, it risks creating a double charge on death, with combined effective tax rates of well over 50 per cent in some cases,” he said.
Accountancy firm Begbies Chartered Accountants has estimated the combined tax burden could reach as much as 62 per cent in certain circumstances when both taxes apply to the same asset.
Mr Sedgwick also warned the changes could make settling an estate far more complicated.
“The current uplift is straightforward to understand and deal with. By removing it, a deceased’s loved ones will be left having to hunt for old records,” he said.
Estates often need to sell assets within six months to pay inheritance tax. If those sales also trigger capital gains tax, families could be left with significantly less money after meeting both liabilities.
Ben Klein, senior wealth manager at Tideway Wealth, said this could create serious cashflow problems.
“The biggest practical consequence may be liquidity problems. Beneficiaries could inherit valuable assets but have little cash to pay associated tax bills,” he said.
He warned the changes could force families to sell inherited homes, investments or family businesses sooner than planned or at prices that do not reflect their true value.
Mr Sedgwick said the proposals could also change how families approach estate planning.
“Families may look more closely at creating trusts, making lifetime gifts or selling assets earlier, particularly if the gains would be sheltered under current rules,” he said.
He added that some wealthy individuals could even consider moving overseas, as non-UK residents generally do not pay capital gains tax on assets other than UK land and property and can fall outside the scope of inheritance tax after living abroad for 10 years.
Despite the speculation, Mr Klein urged families not to make rushed decisions.
“For now, most families should avoid making major estate-planning decisions based solely on reported proposals. The details remain uncertain, and any eventual legislation could include exemptions, reliefs or transitional arrangements,” he said.
Mr Sedgwick advised families to keep their wills up to date, understand where the value lies within their estate and maintain organised records while awaiting any further details.
