UK families and direct property investors could be hit with sharply higher Capital Gains Tax bills if two reforms currently being floated actually land, according to new analysis from wealth manager Rathbones. The proposals on the table: abolish the CGT uplift on death and align capital gains rates with income tax rates.
Rathbones ran the numbers on both. The combination, it says, could push a £500,000 gain on an inherited family home to a tax bill approaching £120,000, and add thousands of pounds to the bill on a single share or second-property disposal.
The short version:
- The analysis was produced by Rathbones, with quotes from financial planning director Ed Wood and investment director Kirsty Cartwright.
- Removing the CGT uplift on death: a property gaining £500,000 over 25 years could produce a near-£120,000 tax bill for the eventual seller, assuming a 24% rate.
- Aligning CGT with income tax: an additional-rate taxpayer with a £50,000 gain outside wrappers could pay £21,150, up from £11,280 today, a rise of about £9,870.
- A higher-rate taxpayer with a £50,000 gain would see the bill climb from £11,280 to £18,800.
- Even basic-rate taxpayers would be hit, with a £10,000 gain taxed at £1,400 instead of £1,260.
- Planned IHT changes from April 2027 will bring unused pension funds into the inheritance tax net, compounding the impact.
How we got here
Capital Gains Tax in the UK currently lets heirs inherit assets at a rebased value for CGT purposes, which means gains accrued during the deceased's lifetime are effectively wiped out on death. That base-step-up has long been a quiet cornerstone of family wealth planning, particularly for buy-to-let investors and second-home owners.
Two policy directions are now drawing the most speculation. The first is a simple abolition of that uplift, forcing heirs to use the original acquisition cost when they eventually sell. The second is a rate alignment that could push CGT as high as 45% for additional-rate taxpayers. Layered on top is a 2027 inheritance tax change that pulls unused pension pots into the IHT calculation, which is the "one-two punch" Wood flags in the report.
Our analysis
For direct property investors, the practical risk is not just the headline number but the admin. As the report notes, executors may need to reconstruct decades of purchase history, track down improvement receipts and resolve the original acquisition cost of assets held across multiple generations. That is paperwork grief on top of the cheque.
There is also the behavioural point Wood raises: tax hikes tend to change how investors act. Higher CGT can delay disposals, encourage more holding within ISAs and pensions, and push family wealth into trust structures earlier. None of that is good for a government trying to time its receipts, and it is one of the reasons CGT reform sits in a politically awkward spot for any incoming administration.
For buy-to-let landlords and second-home owners specifically, the message is blunt: assume your exit multiple now includes a larger tax drag, and stress-test your yield assumptions accordingly. Core investors with long horizons may shrug; value-add operators who expected to flip in five to seven years need to remodel.
Worked example
Say you are an executor of an estate that includes a property which has risen sharply in value over a long holding period. Under today's rules, the uplift on death means the heir's base cost is the market value at the date of death, so a modest subsequent gain carries a small CGT bill. Under the reform scenarios Rathbones sets out, the base cost instead stays at the original purchase price, exposing the full lifetime gain to tax. On a £500,000 lifetime rise, the 24% rate Rathbones uses generates a bill approaching £120,000, more than enough to upend any inheritance plan built around the existing rules. The reform changes the math completely, which is why executors are now being urged to gather every receipt, valuation and improvement invoice while parents are still alive.
Bottom line
Treat the rumoured reforms as a planning deadline rather than a distant threat. Pull together title deeds, improvement receipts and original purchase documentation for any inherited or planned-inheritance property now. Talk to a tax adviser about trust structures and gifting windows before any change takes effect. The window to act cheaply is the present one.
Key takeaways
- Abolishing CGT uplift on death could add roughly £120,000 to the tax bill on a £500,000 inherited-property gain.
- Aligning CGT with income tax rates could nearly double the bill for higher and additional-rate taxpayers on a single disposal.
- Reconstructing decades of ownership history will itself become a cost; gather records while you can.
Frequently asked questions
What CGT reforms is Rathbones warning about?
Two ideas: scrapping the uplift on inherited assets and aligning CGT rates with income tax rates, potentially up to 45%.
How much extra tax could a higher-rate taxpayer pay on a £50,000 gain?
The bill would rise from £11,280 today to £18,800 if CGT rates match income tax rates.
What is the CGT uplift on death?
The current rule that resets an inherited asset's cost base to its market value at the date of death, erasing gains accrued during the deceased's lifetime.
Will pension pots really come into inheritance tax?
Yes. From April 2027, unused pension funds will fall within the scope of inheritance tax.
What should property investors do now?
Collect every receipt, valuation and improvement record for properties that may be inherited, and review gifting or trust options with a tax adviser before any reform takes effect.
