Jeremy Hunt warns households face 'double death tax' adding an extra £26k to inheritance tax bills
Jeremy Hunt warns households could face 'double death tax' under a Labour Government
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Jeremy Hunt has warned thousands of families are at risk of over £26,000 being added to their inheritance tax bills under Labour's potential “double death tax”.
The Chancellor believes Britons are at risk of not only an increase inheritance tax but also the introduction of a capital gains tax charge on assets passed on when people die under a Labour Government.
Currently, capital gains tax is only paid when a beneficiary sells an asset they have inherited. Only gains made from the point of death will be taxable.
However, removing this exemption could increase death duties for thousands of families who own investment portfolios and second properties.
For example a family inheriting a £1.5million estate that included a £111,000 gain would pay an extra £26,000 in tax, analysis from wealth manager Quilter has shown.
This assumes the couple who died have each maxed out their inheritance tax allowances.
Inheritance Tax (IHT) is a charge of 40 per cent to anyone's estate above £325,000 once they die
GETTYInheritance Tax (IHT) is a charge of 40 per cent to anyone's estate above £325,000 once they die.
An estate includes someone's property, money and possessions.
If people give away their home to their children (including adopted, foster or stepchildren) or grandchildren their threshold can increase to £500,000 due to the residence nil rate band of £175,000.
This means couples can pass on £1million before having to pay 40per cent on the excess on their estate.
Based on the example above, the family could expect to pay £200,000 in inheritance tax.
If capital gains tax applied on death, and they had a second property that had grown in value by £111,000 since they bought it, then their children would owe an extra £26,000 in tax.
Rachael Griffin, of wealth manager Quilter, said: “The Government’s inheritance tax take has been growing rapidly in recent years as a result of frozen tax thresholds and higher house prices, with many more families now caught by the inheritance tax net, and an additional capital gains tax bill would result in an even greater financial hit with a potentially hefty bill that families will not have planned for.”
She added: "The threat of paying capital gains upon death could prevent people from keeping properties in the family".
Capital gains tax is charged at 24 per cent for second properties where the owner is a higher-rate taxpayer and the profit is more than £3,000. This drops to 18 per cent for basic-rate taxpayers.
Families holding onto large assets for long periods of time, benefitting from a significant increase in asset prices stand to be worst hit if the policy was introduced.
The Resolution Foundation has said that capital gains tax “forgiveness” on death “creates a ‘lock-in’ effect that can distort decisions about when to dispose of assets”.
It is estimated that levying capital gains tax at the point of death would raise around £1.6billion a year, the Institute for Fiscal Studies previously found.
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The speculation comes after reports that Labour is drawing up plans for wealth tax rises worth up to £10billion.
Sir Keir has insisted throughout the election campaign that Labour will not raise taxes on “working people” - specifically counting out income tax, National Insurance and VAT.
The party also ruled out charging capital gains tax on the sale of family homes.
In response to Mr Hunt’s suggestion of a double death tax, a Labour spokesman said earlier: “Keir [Starmer] and Rachel [Reeves] have made clear that our priority is growing the economy, not increasing taxes.
“Labour has set out fully costed, fully funded plans with very specific tax loopholes we would close. Nothing in our plans requires any additional tax to be increased.”
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