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 about all the investments people make into their house to ensure it stays standing, or to improve it?

Eg we've just spent ££ on all new windows on our house. A few years ago we had the garden landscaped.

Over the years we've knocked walls down, put walls up, replaced carpets, gas boiler, fitted kitchen etc etc.

Would all those expenses be offset against the any profit made between buying and selling the house, and how would any beneficiaries or executors know how much was spent?

We’ve done this one, RTFT rather than jumping on to tell everyone why you shouldn’t pay tax.

1. there is already a process for this in place with any form of second property (capital expenditure is deductible)
2. if you don’t know then in other countries it’s assumed to be zero, it’s amazing how many people manage to find the documents they need.
3. You’re making a profit on your investment anyway.

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?

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?

Correct

Hang on a minute.
For disclosure we are higher rate tax payers. No issue as we want and need our public services and that's the law. We don't dodge paying or move things to avoid.
We bought our home in 2018. So we haven't taken advantage of buying when houses were cheaper and huge gains. We have chosen to use our money in a home that suits our family. We have chosen to invest in pensions for old age rather than take multiple holidays for example. Someone else will have no pension, won't be paying a mortgage and have loads of holidays etc. We have spent money (after taxation) to make our property how we want it rather than buying designer gear or sending the children to private school. I do not see how or why we should pay even more (or the children pay) after our death given we have made what we deem to be sensible decisions. I would be happy with additional tax on income. Why should the pensions we have CHOSEN to build (rather than another holiday or whatever) be heavily taxed? Why should our home that we have CHOSEN to buy and spend money on (plus mortgage rates) be heavily taxed? Or should we sell up, rent, stop paying into pensions and make it the states problem when we can't afford to live, go on more holidays, live it up more?
There has to be a way to not penalise those who are already contributing.
And why large corporate businesses are able to avoid tax when the hard working individuals are slammed is beyond me. It's a shit show.

I’d support IHT on pensions, unless the pension is used to buy an annuity-type income for a partner or dependent child.

I feel fine about it as per my post. HTH.

You have made the assumption though that the other reliefs you mentioned don't ret removed. There is speculation about that too. Things like bpr and apr etc and business asset disposal relief etc.

No doubt in my head that there will be changes. But it is a tough balancing act - and often these things have unintended consequences and don't end up creating the increase in tax that is thought.

Its going to be a very interesting budget I think.

But why should any GAINS you’ve made on assets or saving be tax free?

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.”

It is interesting that against the idea of CGT at death esp on property, several ppl have said IHT threshold is too low.

I think the positioning of any changes is going to be absolutely crucial.

"But why should any gains you've made be tax free?"

1. By your reckoning we should save every receipt for everything spent on our property to off set against any "gain"?

1. Because we have CHOSEN to save. To reduce our burden on the State. So actually how to do offset that?

No it isn’t. Deprivation of assets is disposing of wealth in anticipating of avoiding care costs. It’s entirely different.

1. 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. :-)
2. 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.

"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

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.

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

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.

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'

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.

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.

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!

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.

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