Middle-class families could be set for an even tighter squeeze on their finances under potential “family home death tax” plans from an incoming Andy Burnham government.
As the UK’s tax burden hits post-war highs, Mr Burnham and his allies have reportedly been mulling over changes to the so-called capital gains tax (CGT) “uplift on death” rules, a move that, were it put into force, would put a serious dent into the finances of middle England.
The former mayor of Manchester has previously supported ideas floated by the Fairer Share campaign group, such as a new proportional property tax that would replace stamp duty on purchases and council tax with a land value tax.
Wes Streeting, the former health secretary who could yet be made chancellor, is one of many leading Labour figures who believes capital gains tax rates should be equalised with income tax.
But another, less well-known, change to the CGT regime could wreak havoc on families’ wealth. Removing the “uplift on death” would mean the lifetime gains of an asset, such as property, would be in the scope of tax.
Politicians have considered plans to ditch the CGT uplift for years, with various think tanks such as Tax Justice UK, Centax and Fairer Share having thrown their weight behind the policy.
In a recent essay, Louise Haigh, the former transport secretary and an ally of Mr Burnham, wrote that reforms, “at a minimum”, should look at changing CGT uplift at death.
How capital gains tax works
CGT isn’t charged on your main home but is levied on additional properties, shares not held in Isas, business assets and some high-value personal possessions (though not your car). The rate of CGT paid depends on your income tax bracket, with basic-rate payers charged 18pc and higher-rate taxpayers charged 24pc.
Under current rules, when a person dies the value of their asset is “uplifted” to the market value at the time of their death, meaning any value gained on assets over the course of their lifetime is not subject to CGT.
Instead, CGT is levied on gains from the time of death to the time of sale. If a property was bought in 1980 for £100,000 and was worth £200,000 when the inhabitant died, that £100,000 increase is currently not taxable.
Should the beneficiaries of their estate opt to sell the property for £250,000 a year later, they would only be charged CGT on the £50,000 increase in value, but if it sold at its uplifted market value of £200,000, they would not pay any CGT.
