Labour chancellor Rachel Reeves is being urged to double down by taxing family wealth not once on death, but twice.
Under Labour, you only pay tax twice when you die (Image: Getty)
Left-wing think tanks are urging the Labour government to tax people’s accumulated wealth twice when they die. This would see grieving families being taxed then taxed again, on the same money.
Labour backers say this will help reduce “intergenerational inequality”, which is left-wing speak for taxing pensioners more.
Currently, when people die, families face paying inheritance tax (IHT) on the value of their inherited estate.
Now the Institute for Fiscal Studies (IFS) is urging Reeves to double down, by hitting them with capital gains tax (CGT) first. Then IHT.
It’s not the only Labour-leaning think tank pushing for this. The Resolution Foundation – which hasn’t seen a tax it doesn’t want to double – is also demanding grieving families pay CGT and IHT on exactly the same money.
Unsurprisingly, it’s been dubbed a double death tax, which describes it pretty well. And Reeves is coming under mounting pressure to introduce it in her Halloween Budget on October 30.
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CGT is charged on gains people make when selling assets, such as an investment property or second home, a business they’ve set up, shares held outside of a tax-free Isa, or other forms of wealth such as art, antiques and Bitcoin.
Reeves is already thought to be planning to hike CGT rates, to bring them into line with income tax bands.
Today, higher earners pay a maximum CGT rate of 24%, but that looks set to rise to either 40% or 45% in the Budget.
Currently, any CGT liability is wiped out when people die. So families only pay IHT.
That isn’t enough for the IFS. Or the Resolution Foundation. Or many Labour activists.
They want families to pay CGT on any capital gains first, then IHT on any money that’s left.
Wealth manager Quilter has calculated that a family inheriting a £1.5million estate that included a £111,000 capital gain would pay an additional £26,000 in tax under the move. Those with larger gains would pay a lot more.
Instead of paying IHT at what is an already punitive rate of 40%, grieving families could pay up to 54.5% instead.
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Today, when someone dies with a capital gain, there’s no CGT to pay.
Beneficiaries inherit the assets at their market value, wiping out the accrued gain. The wealth falls into that estate and may then be subject to IHT.
IFS deputy director Helen Miller said: “This creates a very big incentive for people to hold on to assets well past the point at which it is efficient for them to do so.”
That’s her justification for introducing the double death tax. Along with raising more tax revenues, of course.
For years, campaigners have claimed that IHT is unfair, because it taxes money that is already been taxed at least once.
Imposing both CGT and IHT on the same money would make that double taxation explicit.
It will also make it even harder for people to pass on wealth to loved ones, something Labour hates, arguing that it disadvantages those with no inherited wealth.
The Labour government could scarcely be less popular. This new policy will turn even more people against it, if Reeves is mad enough to adopt it.
