Grieving Americans will be hit with a “tax armageddon” if Kamala Harris wins the presidential election, under new rules to raise federal funds from inheritance.
The vice president is planning a double raid by lowering the threshold at which relatives pay estate tax and abolishing a rule that allows children to inherit properties without paying capital gains tax.
Wealthy Americans have begun passing on their assets to their children as gifts to avoid the potential new rules, which could come into effect in mid-2025 if Ms Harris wins the election this November.
She has adopted several tax proposals originally suggested by Joe Biden in his 2020 campaign, including the changes to inheritance rules.
Under Ms Harris’s plan, the threshold at which inheritors pay estate tax will fall from its current level of $13.6 million to $3.5 million. She will also abolish the “step up basis”, which cancels out capital gains bills for inherited properties.
Headline-grabbing over concrete plans
Ms Harris has said little about her plans to continue an estimated $5trn tax raid first planned by Mr Biden, focussing instead on headline-grabbing policies to counter inflation.
However, analysis by The Telegraph suggests they could almost quadruple the tax paid on an $20m inherited property that had been owned by a deceased relative since the mid-1960s, from $3.5m to $13.2m.
The bill would include $9m in estate taxes, charged at a 55 per cent rate on any value above $3.5m, and $4.2m in capital gains tax at the point the property was sold.
David Lesperance, a financial adviser who works with high net worth Americans, said many of his clients were transferring their assets to their children under the current rules, fearing tougher policies under a Harris administration.
‘Use it or lose it. Don’t wait until you die’
“Everybody’s gifting like crazy right now,” he told The Telegraph. “What’s going to happen is tax Armageddon. Every financial adviser right now is saying that you have to use it or lose it. Don’t wait until you die.”
Democrats have long sought to abolish a “loophole” in capital gains tax, which allows children to inherit their parents’ assets without paying the tax on gains since it was originally purchased.
Under the current system, the value of a property is “stepped up” at the point it is inherited, meaning that no capital gains is ever collected on an increase in value between the original sale and the owner’s death.
Ms Harris has pledged to abolish this system, so that any capital gains above $5m is taxed when the property is sold by the original owner’s heirs.
The two policies are among dozens of tax changes planned to increase Treasury revenue by trillions of dollars.
Ms Harris has already faced backlash for her adoption of Mr Biden’s plan to tax unrealised capital gains for Americans worth more than $100m.
Capital gains are generally only taxed at the point of sale, but her proposal would mean illiquid assets can generate a tax bill.
‘One of the worst tax ideas floating around’
Jay Clayton, commissioner of the Securities and Exchange Commission under the Trump administration, said earlier this month that taxing unrealised gains was “one of the worst tax ideas floating around”.
Ms Harris is also planning to increase the rate of capital gains to 28 per cent for top earners, increasing the bill on inherited properties further.
If she wins the presidential election, all of the plans would be subject to approval in Congress, where she is likely to face significant opposition from Republicans.
Her wealth tax proposals were first suggested by Mr Biden at the last presidential election, but failed to get through Congress during his term in office.
She has said she will not increase taxes on middle-class Americans, and that extra revenue generated by the Treasury will be put towards inflation-busting price controls on supermarkets. Trump has called those separate proposals “communist”.
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