My client and her brother have been left the residuary estate of their aunt by her will (equal shares). The estate consists mainly of two properties. One will be sold to cover IHT and legacies and the remainder then divided between my client and her brother. My client wishes to purchase her brothers share in the other property. She wants her brother to have the cash from the sale proceeds of the first property and make up any shortfall herself. She already owns a property of her own. Would she be liable to pay second homeowners SDLT (if that term is correct) as she is purchasing some of the property and if so on what share. The conveyancing department seem to think it would be payable on half (as she is inheriting half) but surely it would only be on the share she has to actually purchase from the estate?
Normally inheriting a property involves no consideration, and hence no SDLT charge.
However, in your case it seems consideration is provided by the sister.
If residuary estate comprises, say, 100k cash (from sale of other property post IHT etc) and property (not sold) worth say 400k then sister entitled to 50k cash and 200k share of property.
If she agrees that brother takes her 50k cash plus she provides a further 150k external cash in exchange for acquiring brother’s 50% in the property has she not provided consideration of 200k cash on which SDLT then charged?
Not sure whether a DoV could be of help. Certainly she could DoV her cash to brother and he could in exchange DoV his 50% interest in the property to sister without any SDLT charge but he would “lose out”; and if she gave him cash for the balance then external consideration would have occurred and invalidate the DoV.
It seems to me that much depend son how the Will is drafted but if the 2 children are simply residuary beneficiaries then neither has a vested right to a particular assets within residue. So it would be possible to appropriate a larger portion of the retained house to the sister by way of inheritance and balance that by a larger portioin of cash being appropriated to brother. Using Malcolm’s numbers then, if the net reside is worth £500k, each beneficiary is entitled to £250k. Sisters £250k could be satisfied by appropriating to her 250/400 of property, ie 62.5%. with the balance of 37.5% passing to brother. All the residuary estate cash would be appropriated to brother so that he will have received value of £100k in cash and £150k of property.
Brother could then sell that share to sister and SDLT paid on whatever she pays for that share.
There need be no “exchange” of interests between the beneficiaries.
The executor could appropriate the property to the beneficiary, subject to that beneficiary paying in monies to “reduce” their net benefit to the amount to which they are entitled from the estate. The executor would then appropriate cash to the other beneficiary of an amount equal to the net value of the property appropriated.
The property should be re-valued for the purposes of the appropriation (Re Charteris, 1917). If, however, the appropriation of the property is made at “probate” value, there may be an element of bounty and potential for HMRC to argue the existence of a transfer of value for IHT.
The monies introduced to enable the beneficiary to take the property will be subject to SDLT and, if the beneficiary in question already owns property, the 3% uplift will also apply – whether only on the cash “consideration” or on the full value I am unsure.
In any event, the beneficiary will acquire the property at “probate” value for CGT purposes under s.62(4) TCGA 1992 with no uplift to reflect the “equalisation” monies they have contributed to allow the estate to be distributed.
N.B. If the executor appropriated the property to the beneficiaries in equal shares, leaving it for them to organise matters between themselves, the transaction would be treated as a sale between the beneficiaries and be subject to CGT and SDLT accordingly.
Following on from Simon LENEY (apologies to LEVEY) and Paul’s comments, and if i may use my example, then the SDLT would be levied on 150k i.e. an appropriation of the 400k property to sister with sister handing over 150k which together with the 100k cash is appropriated to brother. I have assumed no movement in value of property between death and date of appropriation.