Currently, there’s no Capital Gains Tax payable on inherited property, but is that set to change?
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For most people, the single most valuable asset in their estate is their home. However, each year, the number of estates where a liability for Inheritance Tax (IHT) is triggered increases, primarily due to ever-rising house prices. After more than a year with the housing market at unprecedented levels – resulting in an 8.6% year on year increase in house prices to February 2021 – we can expect to see an even more significant spike in the number of taxable estates this year.
Capital Gains Tax on death
While IHT is an issue for many estates, currently there is no Capital Gains Tax on inherited property and assets. Broadly, special rules treat the deceased person’s assets as though they had been passed to their personal representatives on the day of death at the market value on that day. This includes any jointly held assets which pass automatically to the surviving joint owner. Once the administration of the estate is complete, the remaining assets pass to the beneficiaries as though they had passed at the date of death, with a market value as at that date.
But are these special rules on Capital Gains Tax on inherited property and assets set to change?
In November 2020, a review of CGT published by the Office of Tax Simplification (OTS) recommended abolishing the Capital Gains Tax-free uplift on death. This could mean that the same assets are liable to both Inheritance Tax and Capital Gains Tax on death. There is currently a dearth of information on how this would be calculated, but understandably, it has been suggested that such a change is likely to encourage people to consider giving away more of their assets during their lifetime.
The government have made no announcements as to whether or when such a change may be implemented. But with public finances decimated by the pandemic, changes to Capital Gains Tax on inherited property would be a relatively easy target for the Chancellor, who will soon need to significantly increase the government’s tax income.