Government told to scrap unpopular tax benefit and keep Winter Fuel Payments

Young woman looking over her finances
-Credit: (Image: Getty)


Experts at the Institute for Fiscal Studies (IFS) are advising the Chancellor to consider ditching unpopular tax reliefs on passing on assets like second homes, businesses, and shares to loved ones. This could potentially net the Treasury a minimum of £2 billion annually from those who have recently lost family members.

This proposed overhaul would outstrip the anticipated savings of £1.4 billion that the government is set to collect by withdrawing the Winter Fuel Payment from nearly 10 million pensioners this upcoming winter. The IFS's suggestion indicates that the Chancellor could reverse the controversial decision to scrap energy bills aid for older citizens.

At present, when an individual sells assets such as second homes or stocks, they might pay Capital Gains Tax (CGT) on profits at roughly 20 percent for higher-rate taxpayers. Yet, if assets aren't sold within their owner's lifetime, they can entirely avoid CGT thanks to a mechanism called "uplift on death".

Inheritors receive these assets at their current market value. This means if they sell right away, there's no CGT due just on any value increase while it was in their possession.

Senior couple sorting their finances
The Government has been urged to scrap a tax relief around passing on second homes, businesses and shares to loved ones -Credit:Getty

Abolishing the "uplift on death" relief, making assets subject to CGT from purchase to sale, would generate £2 billion a year per IFS estimates. The yield might surge even more if CGT rates were aligned with income tax. Head of tax at the IFS, Helen Miller, remarked: "It is a bad tax relief and I would love it if the Government scrapped it."

She suggested that the Chancellor might raise "high single-digit billions" by reforming the capital gains tax system, to align rates with income tax. Miller criticised the existing tax relief as economically damaging for promoting hoarding businesses and property until death, saying: "It is a massive incentive not to sell."

Arun Advani, associate professor at the University of Warwick, endorsed this view in comments to the Telegraph, noting it could be beneficial for both revenue generation and economic growth. "It would stop this problem of people hanging on to assets that they don't actually really want. And it would be good from a revenue perspective," he explained.

Advani further speculated that HMRC and the Treasury were likely discussing these reforms with the Chancellor. Yet, he acknowledged potential criticisms of an overhaul resembling double taxation, as inheritances like second homes, businesses, and shares might incur both CGT and Inheritance Tax.

Advani also contended that the proposed changes could stimulate the economy by prompting more sales of shares or businesses rather than family inheritance, stating: "The empirical evidence is that kids tend to run businesses worse than their parents did. So it is actually better off being passed on from a growth perspective."

A Treasury spokesman stated: "Following the spending audit, the Chancellor has been clear that difficult decisions lie ahead on spending, welfare and tax to fix the foundations of our economy and address the £22bn hole the Government has inherited. Decisions on how to do that will be taken at the Budget in the round."