Is The Sale Of Assets Within An Estate Administration Subject To Capital Gains Tax?

Property within a deceased person’s estate may still be subject to Capital Gains Tax and Income Tax. It may be possible to reduce these liabilities with a quick sale, or through a process called ‘appropriation’.

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By Nicola Briggs - 25th June 2021

The issue of Income Tax and Capital Gains Tax (CGT) does not disappear once a person has died. Income and gains that are made while the estate is being administered still have to be submitted on a tax return. However, there are ways to reduce these liabilities.

Capital Gains Tax exemption

One option is to take full advantage of the annual CGT exemption. Everyone has an annual CGT exemption. This continues for the tax year of death and for the two following tax years. Thereafter, there is no annual exemption. With this in mind, it may be preferrable to sell the deceased's property within those two immediate tax years.

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Power of appropriation

Alternatively, the Personal Representatives could transfer the property into the names of the beneficiaries for them to sell. This is called the ‘appropriation’ of assets. The beneficiaries can then use their personal annual CGT exemptions.

Take the example of an investment property receiving rental income. The property does not have to be transferred legally to the beneficiaries, but can be dealt with under a power of appropriation, which is recorded in writing by the Personal Representatives. This gives the recipient beneficial ownership, so that the sale is treated as if it were by them for Capital Gains Tax purposes.

The appropriation of an asset can be to more than one person, so that more than one annual exemption can be available. The appropriation has to be towards satisfaction of any legacy (say a gift of £50,000) or a share in the residuary estate. It cannot be to somebody who had no interest under the Will or intestacy.

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Power of appropriation for charities

Using a power of appropriation is particularly important where a charity is a residuary beneficiary. This is because charities are exempt from paying CGT on gains made from the disposal of assets, so long as the gains are put towards charitable purposes.

But here’s the catch: the exemption only applies if the relevant property is beneficially owned by the charity at the time of the disposal.

A charity will therefore expect assets to be appropriated to it, before any sale is completed. Failure to do so could lead to a negligence claim being raised by the other beneficiaries. This is because the estate will receive the CGT bill and not the charity. The majority of mainstream charities have helpful notes available, advising Executors on this subject so that they don’t get caught out.

Speak to our wills and probate solicitors

The advantage of employing a solicitor within an estate administration is that they will be fully aware of the CGT implications upon the sale of assets. A solicitor can also deal with an appropriation of assets to beneficiaries for this purpose.

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