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?

@New2thisshizzle
If you’re not married or in a civil partnership your inheritance threshold is only £325k or £500k if you include your home. Lots of middle class ‘holier than thou’ mumsnetters with good pensions, don’t realise how tight things are for low wage WORKING people with no or very little pensions. They presume everyone is married with a £1 million allowance. As she mentioned her kids will be fine.

No, they moved house

I know that @Fluffypuppy1 however they are getting a stellar deal - why is this? Who'd have thought it, very rich people protecting their assets whilst the serfs get taxed more and more. Close the loop holes and renegotiate the whole financial setup of the RF. Then tell us we need to pay more tax.

And that is the uncomfortable truth….its not just the higher paid that need taxing more to provide more money for public services, it’s those at the lower and middle end. Because it’s the only way that the government can increase raise enough money now and over the long term.

Sure, you can keep putting up tax on the ‘rich’ but there aren't enough of them to provide the level of tax required. You can try and target the big multinational businesses, but there are global agreements in stuff like transfer pricing and profit shifting, so that’ll take longer and raise less than you think. You can try a wealth tax, but again while it might provide a short term hit the long term effect is a continued hollowing out of the tax base.

Everyone needs to pay more to fund public services, and that means people earning between £30k and £100k as well as the ‘rich’. It means that IHT should be paid by all, not just those with a larger estate than whichever poster is opining at the time. That’s the choice we face..and so far, the electorate have not been in favour. As to them ‘rich’ is always someone else, even if they earn twice the average income. However, they’ve voted in a bunch of politicians that have very particular definition of what a working person is, and it’s not even someone on average income, so brace yourselves!

The other option of course is to grown the economy…but the government seems to be considering policies that will have the reverse effect.

I believe there is a loan scheme in place for this situation - which would then need to be repaid when the house is sold (or if not planning to sell then the kids could take out a mortgage).

@Didyousaysomethingdarling I am aware of that. I mentioned the 1m threshold in a response to a poster referring to her parents and that the threshold was very low.

I don’t think 500k is very low either, very few estates pay IHT.

My comment was in response to your dc being made homeless.

But it may not necessarily be money we get for doing nothing. Many of us spend a lot of time caring for our aged or infirm parents. It’s not the money that we do it for, but it is still tiring and stressful. Furthermore, my family wealth overall came from all of us working hard to build the family business. So it isn’t always possible to distinguish family wealth from income.

Plenty of people care for older relatives and don’t inherit anything though.

Most inheritance comes from property wealth and that’s mainly the result of a distorted property market and economic policy that boosted assets.

But why should low and middle income households subsidise tax free wealth transfers for rich families?

Again I use the word subsidise purposefully as it’s the word so many people bring into discussion on tax.

When I bought my first house in 1986, average house prices were about 3x earnings they are now nearer 10.

So firstly you didnt need the bank of mum and dad as a first time buyer and secondly when mum & dad died the relative amount you inherited was nowhere near as big as it is now, OK picking up a lump sum of a year or twos pay wasn't to be sneezed at but it wasn't life changing.

Oh & dont forget final salary pensions as well.

In the meanwhile however building costs have risen roughly in line with inflation

Disciss.............

Why is your proposal better than lowering the IHT limit, OP?

At present, various assets have tax exemptions - pensions, primary residences, ISAs.

The number of estates with significant assets not in one or several of these (eg large stock holdings not in an ISA) must be a fraction of estates over the current IHT limit.

So why isn’t lowering the IHT limit simpler and cleaner and more lucrative to implement?

Where do I say they should?

I am saying everyone needs to pay more, if we want the services.

Well in my town 8 out of the last 10 houses sold would have paid it! More and more very ordinary homes especially in the south east will pay it.

....and the elderly who don't work but live on an enhanced state pension - there are enough threads aleady on this so just ignore me...

I’m not clear on your argument, are you saying that there should be a tax on wealth (assets) or not?

Well in my town 8 out of the last 10 houses sold would have paid it! More and more very ordinary homes especially in the south east will pay it.

im a London so fully aware of discrepancies in house prices…

You can’t just bring in something that has increase from the date they bought it especially when many bought at ridiculously low prices up against a retirement home

you can fix it at the price it was on a particular year for all properties (similar to council tax) and do it from there and only have it if it is sold - solving the issues of farms as they aren’t sold and making it a more even playing field. Even so you are taxing it twice inheritance and CGT and it could actually badly impact the housing market and it could cause less houses to be sold and families keep assets

Labour will do something with it in October and the threshold has been cut

Also @DotPotato it is exactly the lower and middle
income families you would hit

If you’re going down that path, why should high earners subsidise free childcare hours and child benefit, for example?

What I am saying is that there has been a huge increased in house prices which has made both the value of and importance of inheritance much greater.

A better solution might be to introduce some sanity into the housing market and make pensions better

Not clear what you mean, how is this comparable?

Am I understanding you correctly so my mother who is looking to move to a more suitable property (bungalow) but will probably be paying more not less than current on will be taxed on the increase in the new house (minimal) rather than the increase in the current property (300k ish) that works for me. Benefits the wealthy who have more ability to move so what's to be upset about (where's that sarcasm emoji again?)

Got you, yes pensions are a problem but issues is extent to which employers can afford higher contributions as employees esp low to mid income can’t. Or set tax relief at flat 33%.

Prob with housing market is you can’t really take prices down that much, you can only stop them going up… which doesn’t solve the huge issue of how much wealth has been concentrated in homes of richer and (sorry) older generations. I don’t want to make this generational as I don’t think it’s a helpful way to look at what is essentially a wealth issue.

You were arguing that it’s not on to expect people on lower incomes to subsidise tax breaks for richer people. Firstly, they aren’t subsidising anything (it’s a tax break or exemption, not a cash service that is being underwritten), and secondly, the richer people are already subsidising (in that their tax definitely pays for services used by lower income families) a huge (and ever increasing) chunk of society.

I think some kind of stamp duty reform is a better way of taxing the growth of house prices. At the moment, the tax burden falls on the buyer, who hasn’t benefitted from the increase in property value.

It’s a tax break. Because wealth (assets) are subject to different CGT rules at death (none) than in life, and property is treated differently again. The taxes are there. These are exceptions therefore they are tax breaks that are subsidised by other tax payers having to pay more to achieve the same total tax take.

As for childcare, completely ridiculous comparison. For a start, it’s a form of redistribution which is the purpose of the tax system, free childcare enables lower income households to work which is good for the economy and for everyone. If your argument is that the threshold for receiving free hours is too high then do say.