CGT and conditional contract

I have inherited a relatively straightforward estate apart from the fact that the deceased owned a field which was subject to a conditional contract. Contracts were exchanged (pre death) subject to planning being obtained. At the date of death the land was valued at £200,000.00. Following death contracts became unconditional and completion took place in May 2016. The price paid to the estate for the land was approximately £400,000.00 I need advice on the CGT consequences for the administrator (the deceased was intestate) as I have never come across this scenario before.

As an added complication the widow (and administrator) has decided that the deceased’s children (by his first marriage) should receive the sale proceeds and in this case can she ask them to pay any CGT payable.

sharon edelstyn
Phoenix Legal Group

If it definitely was a conditional contract then in accordance with section
28 (2) the disposal date for CGT purposes is the date when the condition
was satisfied.

As I see it the next question is who owned the land at the date the
condition was satisfied.

If residue had not been ascertained and the the land had not been
appropriated to a beneficiary then the disposal will have been made by the
personal representatives who will be responsible for paying the CGT –
presumably out of the sale proceeds.

If a section 142 IHTA 1984 deed of variation can be validly made
[remembering that depending on the value of the estate, date of death value
of the land agreed with HMRC & widow’s entitlement under the intestacy
legislation this could create an additional IHT liability] by the
beneficiaries entitled it seems to me that the easiest way of solving the
question of who pays the CGT would be to under the deed of variation using
a suitable form of wording vary the estate by redirecting the net proceeds
of the conditional contract less the CGT payable by the personal
representatives under the conditional contract.

Andrew M Mortimer

Responding to the tax query, as you will be aware, for Capital Gains Tax purposes the date when the contract becomes unconditional (not completion) will be date of disposal (s28(2) TCGA 1992), so you need to check that this is in 2016/17, if completion took place in May 2016. This will be relevant for the date when the tax is due and the rate of tax payable.

It would then appear to be a disposal by the administrator, with Capital Gains Tax payable by the Estate, and with a deduction for the value of the land at death. You will need to consider whether the value at death has already been ascertained for Inheritance Tax purposes or whether the administrator should submit a post-transaction valuation check (form CG34) to HMRC to agree the unascertained value of the land at death, to provide certainty over the Capital Gains Tax payable by the Estate.

Carlton Collister
landtax llp

I agree with Andrew Mortimer that, perhaps, the easiest way forward would be for the widow to enter into a deed of variation in favour of her intended beneficiaries, giving them the land subject to them bearing the CGT liability (and the costs of agreeing that liability with HMRC?). The fact the liability did not actually exist as at the date of death will not prevent this. Responsibility for the CGT, etc. needs to be specified within the variation itself, otherwise it would likely be external consideration and the variation would fall outside of s.142 IHTA by virtue of s.142(3).

Whilst the variation might include a declaration that s.62(6) TCGA will apply to the variation, the terms of the variation will be backdated only for the purposes of s.62 and will not provide for the disposal to be deemed to have been made by the beneficiaries.

Paul Saunders

As Andrew Mortimer points out, it is critical to ascertain whether the contract was a conditional contract or not.

For example, if the grant of planning permission was relevant but was included as a condition subsequent the contract would be unconditional.

Malcolm Finney