CGT, Appropriation and PPR

I have been instructed by a family who used a legal services firm to administer the mothers estate. The property was worth £900k at death and was left to daughter and 2 grandsons in equal shares at age 25. There was an IHT liability of which some was paid using the cash assets and the rest was secured on the property. This was back in 2013 and no payments have been made since the first 2 installments, which were paid together using the cash balance of the estate. Property is still in the deceased’s name and the beneficiaries are under 25 but there are powers of advancement in the Will. The beneficiaries now wish to get a mortgage to pay off the IHT secured on the property and have it transferred.

The grandsons do not own their own property and mother wishes to gift her one third to the sons. No one has lived in the property since the deceased died. I am aware that we can appropriate the property, but can this be done bearing in mind that the beneficiaries were contingent beneficiaries? Would they still be considered to have received the property s at the date of death? Also, is there any scope to claim PPR on the property as they have never lived in it (even though they do not own another property)? And if we did appropriate the property to them as at date of death, as they are not selling the property but are keeping it, would this therefore not be a disposal for CGT purposes so there would be no tax liability for them?

Many thanks

Gemma Van Duke
Bishopsgate Law

If HMRC sticks to its guidance at CG30810, residue has yet to be “ascertained”, so that the property is still within the estate.

On that basis if the will enables them to do so, and provided the grandsons are both aged 18 or more, the executors/trustees could appoint the grandsons’ entitlement to them absolutely in order to help facilitate the raising of a mortgage to discharge the outstanding IHT. The executors/trustees should be satisfied that in exercising the discretion in that manner it is for the benefit of those beneficiaries.

CGT main residence relief will have died with the testatrix and will not be available to the estate in the circumstances described.

If HMRC sticks to the above guidance, then an appropriation to the beneficiaries before residue is ascertained should result in them acquiring as “legatees” under s.62(4) TCGA 1992 – i.e. at the agreed “probate” value.

If HMRC does not agree that the beneficiaries would take as “legatees”, it may seek to impose a CGT charge in relation to the exercise of the appointment to the grandchildren as they will then be taking absolutely against the trustees, and an IHT exit charge (even if s.71D IHTA 1984 applies)

Before proceeding, it might be appropriate to seek an opinion from tax counsel to be confident of the likely outcome.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

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Thank you for your response.

Gemma Van Duke
Bishopsgate Law