CGT on assets Inc primary residence at death

[DotPotato]

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?

What's being talked about though isn't paying cgt on death. So no immediate charge to tax.

Instead what is being suggested is the person inheriting the asset will inherit it at the cost the deceased paid for it, so when they sell it that's when cgt would be due. So, in the case of a house (as that is the most common asset people will leave) if you moved into it after it was left to you - no cgt at that point. Only when you sell.

Its complicated as the original growth in value is on the deceasd person and in the vast majority of cases there would (at least currently) be no cgt implications on the sale of their own property that they lived in - fully covered by a tax relief.

Is it fairer to tax money that someone has got for doing nothing, or tax money someone has got for working hard and contributing to the economy?

Quite, do we want a productive economy or not.

I think if you’re paying IHT on an asset it’s reasonable that you rebase it. It would be harsh to pay 40% IHT and then still have to take the base as what the original owner paid in 1952.

This strategy does not make money. Try asking Scotland. If you want Western European public services do what Western Europe does and put basic rate tax up to 25-30%. This is tax that everyone pays, so makes a vast amount of money. Putting up top rate tax makes very little as there aren’t as many wealthy as you seem to think, and they have far fewer ties to the UK.

It's the fairest thing to do. It would affect everyone working equally.

But you can’t target only workers, that’s the point. Particularly when we have such huge wealth inequality & a shrinking pool of workers. Non workers use public services too…

See, read and inwardly digest

https://taxingwealth.uk/

FYI Richard Murphy was a practising accountant so his proposals are intended to be 'workable' unlike the calls for a blanket wealth tax

There's already IHT that's what it's for. Get the rest of the money from additional rate income tax

If you want Western European public services do what Western Europe does and put basic rate tax up to 25-30%

Exactly

Yes, agree. Far more tax needs to come from taxing wealth than we do now.

for primary residence surely people would get round it by selling the house before they die. My mums house she bought for about £2000 in 1970, it’s a modest 3 bed semi nothing fancy worth about £250k now but there’s a massive capital gain there under your suggestion. She could sell it to me now for £250k and there is no capital gain as it’s her primary residence, there is no deprivation of assets as she now has £250k cash instead of a £250k house so her estate is worth the same but the cash isn’t subject to capital gains tax.

Ok OP let's start with the Royal family and the Duke of Westminster. We'll try your idea out in them and if it works then we'll roll it out to everyone including businesses and farmers. In fact let's first change tax laws so very rich people have to pay their fair share.

Your idea will go after the very people who keep the tax take going. A high proportion of whom are very mobile and frankly already feel like they are a cash cow.

Just for clarification:

King Charles III did not pay tax on the inheritance he received, after his mothers’ passing in 2022. This is a result of a private agreement, made between the British Royal Family and the government in 1993.

And

This incredible inheritance of £9.9 billion instantly made the young Duke one of the richest people in the UK and the wealthiest person under the age of 30 on the face of the earth. While this inheritance would usually attract a tax liability of 40% or £4 billion clever trust planning meant that no tax was payable.

I tried to read with an open mind despite knowing what an uneducated dick Richard Murphy is, but when even the treasury’s own ready reckoner thinks increasing capital gains tax would actually reduce the CGT taken you have to wonder at point 1.

And then point 3 where he raises £7bn from taxing financial services more. Does he know financial services in the UK raise 13% of all taxes, and yet as an industry it is the most internationally mobile going. We’re not talking about mining core assets from the UK. Put tax on it and the entire industry will flit overseas overnight. 13% of tax take gone instantly.

so I stopped reading then to protect my blood pressure. What an idiot.

He got the student loan repayment percentage wrong as well - it’s not 10% over the threshold

If spouse passes everything to the surviving spouse, when the surviving spouse dies, £1,000,000 can be passed on along with pension pots entirely tax free.

But there's already stamp duty to pay on a move (albeit based on the purchase price of new property rather than sale price of old).

I disagree with the premise of introducing CGT onto death transfers - but think IHT is ripe for some changes.

Already if you live in the southeast near London, your very modest 2 bed terrace is worth approximately £600k. If you’re single your allowance is £500k. If you die your kids will be made homeless to pay the inheritance tax of £40,000. No more taxes please, the hardworking low and middle earners shouldn’t have to slog all their lives to have it taken away. Where’s the incentive to provide for yourselves if they keep taxing. Also other European countries run far more efficient healthcare services than the NHS on less money.

No, no, and no.

There is an ever decreasing population in the UK paying income tax, and going after income tax doesn’t tax wealth, damages the middle classes and doesn’t make a dent in what we need. Additional rate taxpayers have many ways of avoiding paying it - pensions and the like, working fewer hours, and ultimately they are the cohort who are more likely to up sticks and leave

Frankly we need more people paying income tax further down the scale. I do think that main residence should be exempt from inheritance tax and CGT. We can’t keep on squeezing the ever decreasing pool of higher and additional rate taxpayers.

Why would your kids be made homeless? If they are children, then they would need to be raised by someone else - other parent, grandparent, aunt, Foster carer. If they are adults then they may well have already moved out and be living independently. Or if not then once the property has sold they each have a £230k deposit for their own property.
I agree that changes to stop the process of paying IHT before property etc is sold and allow for a period of time to avoid grieving families having to make difficult decisions, moving etc in the immediate aftermath of losing a family member would be welcome.

Thank you PP for clarifying that there would be a payment due at inheritance (please note to poster saying how it would affect grief etc etc)… just that you inherit the asset at the value it was BOUGHT, meaning you carry forward the tax due on any gain. Otherwise you’re essentially writing off hundreds of thousands of pounds of wealth that would be taxable in most other circumstances.

Here’s another way of phrasing the question if you disagree… purposefully using the emotive language people apply to private school taxes (bearing in mind school fees are paid from fully taxed income, and the parent paying is not taking up their taxpayer funded place at state school… whereas the gains made in assets passed on at death have had zero tax applied at all so it is totally free money and the richer you are the more you have… akin in fact, to the very good point about winning the lottery (in this case of life) which is also free of tax!):

Why should everyone else subsidise your/my/yourkids/mykides inheritance?

This. It needs to be indexed linked.

They don’t pay it if they don’t sell it.

If you’re single your allowance is £500k. If you die your kids will be made homeless to pay the inheritance tax of £40,000.

What do you mean @Didyousaysomethingdarling?

Thank you PP for clarifying that there would be a payment due at inheritance (please note to poster saying how it would affect grief etc etc)… just that you inherit the asset at the value it was BOUGHT, meaning you carry forward the tax due on any gain. Otherwise you’re essentially writing off hundreds of thousands of pounds of wealth that would be taxable in most other circumstances.

It’s a fundamentally unfair way of doing things, though. You could have a situation where someone lived in a flat now worth £100k but which they bought many years ago for £1k - their heirs would have a CGT bill to pay, assuming the property was sold straight away. Yet another person who bought a house two days ago for £900k and then died and there would be no CGT bill if the property was sold straight away.

At 18 and 20, in full time education, where are they going to find £40k? Which they will have to pay HMRC regardless if the house is not sold?

Any money in a trust has to pay the government 6% of the total value every 10 years. Also any money taken out of the trust is taxed at usual UK tax rates. It’s not some kind of freebie piggy bank or everyone would do it.