The proposals, which have been suggested as part of wider tax reform discussions, could remove the current ‘CGT uplift’ that applies when someone inherits a property.
Whilst no changes have been confirmed, the proposals could add financial pressure to families who are already handling the matter of their loved one’s estate, during the process of grieving.
What is the current rule?
At present, when a property is inherited, its value is effectively reset to its market value at the date of the owner’s death. This means that if the property is sold later, Capital Gains Tax is only payable on any increase in value from the date it was inherited, rather than from when it was originally purchased.
If the proposed reforms were introduced, beneficiaries could instead become liable for tax on the property’s entire gain in value since it was first bought by the original owner.
What could this mean in practice?
Analysis by wealth manager Rathbones suggests the difference could be substantial. For example, if a property had increased in value by £500,000 over 25 years, the Capital Gains Tax bill on a future sale could approach £120,000 under the proposed system, depending on the individual’s tax position.
The reforms being discussed also include the possibility of aligning Capital Gains Tax rates more closely with income tax rates, which could increase liabilities further for some taxpayers.
Nothing has changed… yet
It’s important to note that these proposals have not become law. They remain part of ongoing discussions around future tax policy, and there is no confirmation that either proposal will be implemented.
However, with recent changes already announced to inheritance tax on pensions from April 2027, many financial advisers are encouraging families to keep informed and review their estate planning where appropriate.
What should homeowners do?
For most homeowners, there is no immediate action to take. However, anyone who owns investment property or expects to inherit property in the future may wish to seek independent financial or tax advice if these proposals progress.
As always, tax rules can change over time, and professional advice is essential when making decisions about property ownership, inheritance or future sales. Meanwhile, at Mackenzie Smith, we’ll be keeping a close eye on any changes that could affect local homeowners.
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