The warning comes as debate continues over possible tax reforms under a future Andy Burnham-led government. According to Rathbones, the proposals would come at a time when families are already preparing for inheritance tax changes due to take effect from April 2027.
The wealth manager argues that altering CGT rules could create an additional financial burden for households inheriting property, while also making the administration of estates more complex. Separate proposals to align CGT rates with income tax rates have also been highlighted as a possible source of higher tax liabilities for investors and property owners.
Proposed Reforms Could Increase Tax on Inherited Property
Under the current system, inherited assets such as property receive a Capital Gains Tax uplift when the owner dies. This means the property’s value is reset to its market value at the date of death, removing any capital gains built up during the deceased’s lifetime before the asset is eventually sold.
According to Rathbones, removing that relief would mean beneficiaries inherit the original purchase price instead. As a result, Capital Gains Tax would apply to the full increase in value when the property is sold.
The firm’s analysis estimates that someone inheriting a family home which has increased in value by £500,000 over 25 years could face a CGT bill of £119,280 if today’s 24% tax rate remained unchanged. Smaller gains would also produce sizeable tax liabilities. A gain of £150,000 would generate an estimated tax bill of £35,280, while a gain of £300,000 would lead to a charge of £71,280.
Ed Wood, financial planning director at Rathbones, said the removal of the CGT uplift could feel like “a one-two punch” for many families because inherited wealth could become subject to both inheritance tax and Capital Gains Tax. He also said that, with unused pension pots expected to fall within inheritance tax calculations from April 2027, concerns are growing over how much wealth may ultimately be transferred to HMRC.
Mr Wood added that the proposed changes could create practical difficulties for bereaved families, with executors potentially needing to locate decades-old purchase records, calculate the cost of home improvements and establish historic gains before estates can be settled.
Aligning CGT with Income Tax Could Raise Liabilities for Investors
Rathbones also examined proposals that would align Capital Gains Tax rates with income tax rates. At present, most higher and additional-rate taxpayers pay CGT at 24% on many assets, while additional-rate income taxpayers pay income tax at 45%.
According to Rathbones, if the two systems were aligned, an additional-rate taxpayer making a £50,000 gain outside tax-efficient investments such as ISAs or pensions would see their tax bill rise from £11,280 to £21,150. A higher-rate taxpayer making the same gain would pay £18,800 instead of £11,280, while basic-rate taxpayers would also face higher charges.
Kirsty Cartwright, investment director at Rathbones, said aligning the two tax systems could add thousands of pounds to the cost of a single disposal for higher and additional-rate taxpayers. She said the changes could affect business owners, landlords and long-term investors, particularly when planning investment returns, succession arrangements and the transfer of wealth between generations.
Ms Cartwright also urged investors not to make decisions based solely on speculation. She said Capital Gains Tax is only payable when a profit has been made and stressed the continued importance of making full use of available allowances together with tax-efficient wrappers such as ISAs and pensions.
