RodK

Background: Mr & Mrs X purchased a property in West London in 1959. They had two offspring Miss X and Mr X(Jnr). Miss X married Mr Y to become Mrs Y. They had two offspring Miss Y and Mr Y(Jnr). Mr X died and left the property in its entirety to Mrs X. Mrs Y died before Mrs X. Mrs X died in 2019 leaving the property in the following proportions: ½ to Mr X(Jnr), 1/6 to Mr Y, 1/6 to Miss Y, 1/6 to Mr Y(Jnr). Mr X(Jnr) never married and had no offspring and died in January 2023 intestate. Miss Y & Mr Y(Jnr) as nearest blood relatives became personal representatives of Mr X(Jnr) following grant of letters of administration as well as sole beneficiaries of the estate of Mr X(Jnr). Miss Y and Mr Y(Jnr) appointed solicitors to deal with the estate. There was IHT due on the estate which was calculated by the appointed solicitors. They applied a 10% discount to the property value of Mr X(Jnr)’s estate because of joint ownership. All good so far. The solicitors are preparing CGT calculations for the property element of the estate of Mr X(Jnr). The property has been sold and 50% of the sale price has been added to the cash estate of Mr X(Jnr). The HM Land Registry transfer form TR1 referenced Mr Y, Miss Y, Mr Y(Jnr) and Mr X(Jnr) by his administrators Miss Y and Mr Y(Jnr). CGT is being calculated as the difference between the probate valuation less 10% and the sale value with costs of the sale subtracted and an estate annual exempt amount of £3000 applied. Guidance - HS282 Death, personal representatives and legatees (2024) Updated 6 April 2024 states: 1. Meaning of terms The administration period is the period in which the personal representatives are settling the estate. It starts on the date of death of the deceased person, and will end for tax purposes when either: • the residue of the estate is ascertained • any disputes about the will are resolved The residue of the estate is ascertained when: • the net balance of the estate has been identified • enough funds have been provided to pay any liabilities For CGT purposes, a legatee is someone who benefits: • from a testamentary disposition (usually a will) • on an intestacy or partial intestacy Legatees include trustees of a settlement made under the terms of the will or intestacy. 2. General position There is no CGT charge when someone dies. Instead, there are special rules. The assets the deceased owned on the date of their death are treated as though they had passed to the personal representatives or other person to whom they pass by law on the date of death, at their market value on that date. This includes any joint interests, which in effect pass immediately to the survivors. This means that, when the administration of the estate is complete, the remaining assets are: • passed to the legatees • treated as though they were passed to the legatees on the date of death, at their market value on that date 2.1 If you are a UK resident • You must tell HMRC and pay any CGT due within 60 days of the date of completion if you: • are resident in the UK • are liable to pay CGT • sell or dispose of all or part of an interest in UK residential or commercial property Read Report and pay Capital Gains Tax on UK property to find out more about reporting. Personal representatives do not pay tax at the same time as submitting the online return. If you are a personal representative, HMRC will contact you with details of: • the amount due • how you can make the payment The Annual Exempt Amount (AEA) is available for disposals made in: • the same year as the death • the 2 years following the death This is where I’m confused! Miss Y & Mr Y(Jnr) are the legatees as well as the personal representatives. 1. Should the Capital gain on the 50% of the property be calculated as the solicitors are proposing i.e. treating it as part of the estate or should that part of the property pass to the legatees (following the sale of the property the net balance of the estate has been ascertained so presumably the period of administration can be thought of as complete?) and they report their share individually applying their own Annual Exempt Amount (AEA)? 2. Also, If it passes to the legatees section 2 indicates that the remaining assets are treated as though they were passed to the legatees on the date of death, at their market value on that date – Does that mean that the probate value ignoring the 10% discount for joint ownership is used? 3. Finally, what does it mean when the guidance says the AEA is available for disposals made in 1. the same year as the death, 2. the two years following the death. In this instance death occurred in January 2023 and the sale of property was completed June 2024. What is the AEA in this instance? The AEA was £6000 for 2022/23 and £3000 for 2023/24. Which AEA is used? Any information would be gratefully received!