CGT on assets Inc primary residence at death

DotPotato · 2024-09-22T07:06:42+00:00

Morning all, here to find out some views on something I think should / could change in the budget. At the moment there is a HUGE tax loophole whereby no CGT is paid on assets that you pass on at death. For example, you buy shares in 1950 and transfer ownership in your will, there is zero CGT paid on the capital increase you’ve made over 70 years. Same applies to property, even second homes. If you transfer ownership of the asset when you die, the inheritor receives the asset at the 2024 price but no CGT is due on the gain since it was bought by the deceased person. This is just mad, especially as many assets will not qualify for inheritance tax, and there’s an exemption for passing on property of up to £1 million. I think this should be closed in the budget. CGT should be payable by the estate on ANY asset that is transferred after death, including primary residence. After that, inheritance tax rules should be applied to what remains, potentially at a lower rate given that we are now applying GCT. I think this would be a very fair way of taxing wealth that is 100% UNTAXED, because you’re not asking someone to pay tax on unrealised gains when they’re alive using income they might not have, and you’re not passing on freebies worth potentially hundreds of thousands of pounds to people who inherit just because they were lucky enough to be born to rich parents. Interested in people’s thoughts and how un/popular it might be?

JohnofWessex · 23/09/2024 17:47

“Taxes are essentially an annual subscription to the country you live in. Childhood is a free trial” – Anon

blackcherryconserve · 23/09/2024 17:44

DotPotato · 22/09/2024 08:38

You assume wrong.

You can pass on up to £1million in property before IHT is applied as long as you’re in residence.

Also - “The average earner in the UK now has the lowest effective personal tax rate since 1975 — and one that is lower than in America, France, Germany or any G7 country.” see IFS. Tax burden is tax as a share of national income, not the amount you personally pay.

Show quote history

The £1million applies to couples who are married/in civil partnerships. Not to single people where the maximum is £500K of which £175K is for passing on your home to your heirs

JohnofWessex · 23/09/2024 17:43

“I like to pay taxes. With them, I buy civilization.” ― Oliver Wendell Holmes Jr.

SheilaFentiman · 23/09/2024 16:26

forevernumb · 23/09/2024 11:38

@DotPotato your aggression and assumptions make me stop reading anything you have to say.

Yeah, well said!

forevernumb · 23/09/2024 11:38

@DotPotato your aggression and assumptions make me stop reading anything you have to say.

Tiswa · 23/09/2024 11:14

so we are selling FIL house in London bought in the v early 80s for £5000 are you genuinely suggesting we (middle class one of whom just happened to grow up in an area of London that has only just become desirable) should pay CGT of 45% on the entire sum received

whereas because my grandparents both sold and moved into retirement properties the CGT on those would have been minimal indeed one due to the agreement was sold back to the management firm at the price it was bought thus avoiding all tax

Original poster

DotPotato · 23/09/2024 11:05

forevernumb · 23/09/2024 10:42

@DotPotato

"Completely wrong. We are mortgage free and have a lot of assets, including in pensions which I also think should be taxed when they are passed on (they’re not at the moment)."

While that is partly correct. They are taxed when withdrawn or are you suggesting double taxation on pensions?

You should perhaps RTFT to see that I know this area pretty well.

Taxing a pension when it is withdrawn (it’s income) is completely different to taxing something when it is inherited (it’s an asset).

At the moment, you can pass on pension savings outside of your estate meaning that they are not included in any IHT liabilities. This is unfair and there’s no rationale for it at all, this will go in the budget.

With regards to “double taxation”, this is a term banded round like “subsidise”… by people who don’t want to pay tax but don’t really understand the system. There’s nothing wrong with taxing something twice, it’s exactly what VAT does for example. IHT also taxes some things again, but in many cases it is applying a tax to wealth that has never been taxed because it was held in unrealised gains. Stamp duty taxes money twice. I could go on.

However in the case of taxing pensions at death it wouldn’t be double taxation, because the person who accumulates the pension would pay tax on it ONCE (through withdrawal, CGT or IHT… choose your position). The person inheriting would then only pay tax once through the same mechanisms.

Unless you can think of a good reason that pensions should remain exempt from tax (beyond an individual’s own personal gain).

OP posts:

forevernumb · 23/09/2024 10:42

@DotPotato

"Completely wrong. We are mortgage free and have a lot of assets, including in pensions which I also think should be taxed when they are passed on (they’re not at the moment)."

While that is partly correct. They are taxed when withdrawn or are you suggesting double taxation on pensions?

Withless · 22/09/2024 13:23

Morph22010 · 22/09/2024 13:02

Send her for a fortnight at centre Parcs in the schools holidays 😂 that’ll soon get the value of her estate down

Show quote history

Ha ha yes

Withless · 22/09/2024 13:22

JohnofWessex · 22/09/2024 12:38

Send her off for a fortnight in Magaluf!

Show quote history

We are definitely encouraging her to rent a lovely villa that we can all go to!

Morph22010 · 22/09/2024 13:02

JohnofWessex · 22/09/2024 12:38

Send her off for a fortnight in Magaluf!

Show quote history

Send her for a fortnight at centre Parcs in the schools holidays 😂 that’ll soon get the value of her estate down

PandoraSox · 22/09/2024 12:45

upinaballoon · 22/09/2024 11:24

Yes. I'm damn sure I paid much more than 20% Income Tax at times in my working life, and I am still liable to pay a little, as a pensioner.

I don't know how much difference it would make to change from 20% to 21%, in the way of income for the government to spend. However, am I right in thinking that Labour said they wouldn't raise Income Tax in their manifesto?

Show quote history

Yes, they did.

tigger1001 · 22/09/2024 12:40

"It isn’t different, that was just an example. I think indexation should be applied to capital gains in general, I recall this being a thing back in the 1980s when I studied tax law - can’t remember if it was just for share prices though. Obviously rates would have to go up to compensate.

Sticking to the general principles that money/assets are taxed when they change hands and only taxed once per transfer, I don’t think IHT and CGT could be applied to the same thing at the same time.

I’d like to see a lifetime allowance for inherited wealth for the beneficiary, too. That would encourage the wealthy to spread their legacy wider. Also an end to the Duchy of Cornwall claiming estates with no will or relatives - that money should go to the taxpayers."

Yes indexation was a thing. Until early 2000's (can't remember the exact year) and it was on all assets. The idea was to encourage people to hold on to investments. Rather buy and sell quickly to make a quick gain.

Was replaced with taper relief - similar principle longer the asset was held the bigger the relief. Business assets were quicker to get relief than non business.

Then that was replaced with entrepreneur relief (now essentially business asset disposal relief) so assets bought for personal gain get no relief.

Indexation was supposed to stop tax on inflation. Only the underlying gain would get taxed.

JohnofWessex · 22/09/2024 12:38

Withless · 22/09/2024 12:26

We are encouraging my MIL (who has an estate worth approx 1.5 million) to spend as much as she can.

Send her off for a fortnight in Magaluf!

Original poster

DotPotato · 22/09/2024 12:29

MrsGlennBulb · 22/09/2024 12:26

Yes OP, I was wondering how long it would take before your tongue loosened enough to mention owning “second” properties - and more I bet.

Bloody champagne socialists.

Wealthy people pay little or no IHT. Their assets are tied up in generational family trusts operated by clever smoke and mirrors accountants and wealth advisors.

I’d like to see the residence nil rate band increased. Let ordinary working people (those “a long way down the income ladder” to put it in your terms) pass on their precious home to their children free of the dead hand of the state.

Show quote history

lol!!!!

OP posts:

Original poster

DotPotato · 22/09/2024 12:26

TeenToTwenties · 22/09/2024 12:18

I think taxation works best when it is simple and seems to be fair.

Bringing in a CGT on main houses back dated to anyone currently owning a house even whilst allowing for improvements that most people won't have kept records of, and not allowing for inflation seems not simple and not fair.

Decreasing the OHT threshold seems fair to a point.
Increasing the IHT rate seems fair to a point.
Doing something to stop IHT being avoided by mega rich seems fair
However making rates too high makes it more likely people will try to avoid the tax.

It does seem unfair that someone who has done the responsible thing and saved for their old age with a hope of also helping their children gets penalised when they die, whereas someone who has spent it all on the high life does not.

I wish my parents had taken more holidays.

Agree with importance of enjoying your money. But anyone who has saved has made money from saving, unless they’re stupid enough to have kept it in the bank. That’s the only bit we are talking about, the gains that have been made.

OP posts:

Withless · 22/09/2024 12:26

We are encouraging my MIL (who has an estate worth approx 1.5 million) to spend as much as she can.

MrsGlennBulb · 22/09/2024 12:26

DotPotato · 22/09/2024 11:59

Yep that’s exactly what you do with an asset. I’ve done it myself with second properties. It’s not a reason not to. In other countries, either stump up the paperwork or it’s assumed to be zero… amazing how it works. And btw - repairs and maintenance are deemed to be revenue expenses (not deductible), not capital. So you wouldn’t need to account for the lightbulbs. :-)
Why should you offset the gains? You’ve still gained more than someone who didn’t save. Those gains are free money, in part as they are directly linked to the economy, which doesn’t go up and down based on whether you buy your kids designer gear or not. As for reducing burden on the state, you’d have to go a long way down the income ladder to become eligible (pension credit is set just below the rate of the state pension) so you’re saving for yourself, not for the state.

Show quote history

Yes OP, I was wondering how long it would take before your tongue loosened enough to mention owning “second” properties - and more I bet.

Bloody champagne socialists.

Wealthy people pay little or no IHT. Their assets are tied up in generational family trusts operated by clever smoke and mirrors accountants and wealth advisors.

I’d like to see the residence nil rate band increased. Let ordinary working people (those “a long way down the income ladder” to put it in your terms) pass on their precious home to their children free of the dead hand of the state.

Original poster

DotPotato · 22/09/2024 12:25

I like the idea of a lifetime allowance on inheritance … although most people will only inherit once anyway.

Interesting how there seems to be a consensus forming on lower IHT threshold. I think it would generate all the same behavioural responses but yes is easier to implement.

Interesting how if I’d started with that point I would probably have been shot down!

OP posts:

TeenToTwenties · 22/09/2024 12:18

I think taxation works best when it is simple and seems to be fair.

Bringing in a CGT on main houses back dated to anyone currently owning a house even whilst allowing for improvements that most people won't have kept records of, and not allowing for inflation seems not simple and not fair.

Decreasing the OHT threshold seems fair to a point.
Increasing the IHT rate seems fair to a point.
Doing something to stop IHT being avoided by mega rich seems fair
However making rates too high makes it more likely people will try to avoid the tax.

It does seem unfair that someone who has done the responsible thing and saved for their old age with a hope of also helping their children gets penalised when they die, whereas someone who has spent it all on the high life does not.

I wish my parents had taken more holidays.

SoManyTshirts · 22/09/2024 12:15

DotPotato · 22/09/2024 08:47

So if that’s the case do you think there should be indexation on all other assets? Why is property different?

Show quote history

It isn’t different, that was just an example. I think indexation should be applied to capital gains in general, I recall this being a thing back in the 1980s when I studied tax law - can’t remember if it was just for share prices though. Obviously rates would have to go up to compensate.

Sticking to the general principles that money/assets are taxed when they change hands and only taxed once per transfer, I don’t think IHT and CGT could be applied to the same thing at the same time.

I’d like to see a lifetime allowance for inherited wealth for the beneficiary, too. That would encourage the wealthy to spread their legacy wider. Also an end to the Duchy of Cornwall claiming estates with no will or relatives - that money should go to the taxpayers.

JohnofWessex · 22/09/2024 12:15

SheilaFentiman · 22/09/2024 12:13

Yes, you have seen that argument - several people noting that if there was no CGT on primary residence in life but there was in death, then pensioners would be likely to eg sell their primary residence and buy another in order that only (say) five years of capital appreciation fell on their heirs, not 45 years.

A tax that is easily avoided by perfectly sensible and legal actions is not a good tax.

Show quote history

In order to make this work I would assume that there would have to be a charge against the new property every time it is sold to cover the CGT so you cant 'take the money and run'

Original poster

DotPotato · 22/09/2024 12:14

tigger1001 · 22/09/2024 12:06

"Yes you’re right I have assumed that, but also I don’t think they’d bring in a huge amount so they’re sort of tinkering around the edges but there is an argument.

It will be interesting, I think the biggest problem that any govt faces is that everyone wants someone else to pay, this thread is a really clear example of that.

”Yes tax rich people - they’ve got hundreds of thousands they don’t need poor me I live on a meagre income. Oh me when I die with hundreds of thousands that I don’t need anymore because I’m not here? No I don’t mean that, not me… THEM.”"

That's the issue with capital taxes though. And I think you are wrong about business asset disposal relief - that could increase tax take considerably - but then puts people off selling their business.

And it ultimately depends on the overall objective - not just about increasing the tax take. Ie don't let the tail wag the dog. Taxi g main homes certainly would increase tax take in the short term, but could collapse the housing market. Maybe needed to a point. But then it will ultimately put people off home ownership if up to 45% of the gain is given to the government.

If it's in death only, people would sell as they get older and keep the cash. And pay rent rather than give it to the government. Not everyone of course but enough.

Are governments wanting to encourage or discourage home ownership? That will be the main driver behind the policy with the tax consequences a secondary issue

To be honest not all those consequences are necessarily a bad thing. It wouldn’t collapse the housing market, in most cases people don’t inherit until their 50s or 60s now (I know there are exceptions of parents passing earlier including in our case). Therefore most people already have a home themselves.. and nothing else changes. If older people wanted to move earlier and rent then tbh that’s a not a bad thing as it frees up more family homes in a lot of areas that need them. But normally you’d find that most people would still decide to stay put as they would have done. Nothing is making them move, no one is taking anything from them while they’re alive.

OP posts:

Morph22010 · 22/09/2024 12:14

DotPotato · 22/09/2024 11:42

Yes you’re right I have assumed that, but also I don’t think they’d bring in a huge amount so they’re sort of tinkering around the edges but there is an argument.

It will be interesting, I think the biggest problem that any govt faces is that everyone wants someone else to pay, this thread is a really clear example of that.

”Yes tax rich people - they’ve got hundreds of thousands they don’t need poor me I live on a meagre income. Oh me when I die with hundreds of thousands that I don’t need anymore because I’m not here? No I don’t mean that, not me… THEM.”

Show quote history

Agricultural property relief is a massive loop hole. People living in massive houses with large estates with lots of land, all they need to do is get a few sheep or cows, or grow a few crops on some of the land, pay someone to do the work for them so they don’t have to get their own hands dirty. They then get agricultural property relief on the farm and “farmhouse”. It’s a really tough loophole to close through without effecting genuine farmers

SheilaFentiman · 22/09/2024 12:13

DotPotato · 22/09/2024 11:27

So far it’s interesting as I haven’t seen a single argument about why gains in property SHOULD be tax free at death? Only lots of what ifs, of which I don’t think any that have been mentioned are not already dealt with in other parts of the tax system already.

So how do people feel about CGT being free on other assets at death? Or IHT on pensions?

Yes, you have seen that argument - several people noting that if there was no CGT on primary residence in life but there was in death, then pensioners would be likely to eg sell their primary residence and buy another in order that only (say) five years of capital appreciation fell on their heirs, not 45 years.

A tax that is easily avoided by perfectly sensible and legal actions is not a good tax.