Appropriating property from which legacies are payable

Is it possible to appropriate a property to residuary beneficiaries (or a share of it) when part of proceeds are needed to pay IHT and pecuniary legacies?

The estate consists of two properties but very little cash. Not enough to cover the tax and legacies under the Will. The two residuary beneficiaries wish to have one of (or both) the properties appropriated as they have both gone up in value since the date of death.

Part of the proceeds of sale of one of the properties will be needed to pay the IHT and pecuniary legacies. Is it possible to appropriate property subject to the IHT and legacies or even appropriate that part which I know will be available for distribution after the deduction of these costs? If the executors appropriate part then presumably there will be 3 CGT allowances to use: one for each of the beneficiaries and one for the executors?

sharon edelstyn
Phoenix Legal Group

If the estate assets are appropriated to the beneficiaries whilst IHT is outstanding, this does not absolve the executors from personal liability to pay the IHT (nor the pecuniary legacies).

Executors are required to administer the estate for the benefit of the beneficiaries, not just the residuary beneficiaries. If the assets are appropriated to the residuary beneficiaries, the executors may be criticised for putting the realisation of assets, and satisfaction of the prior legacies, outside of their control. If, despite the personal liability for unpaid IHT, the executors wish to appropriate the assets to the residuary beneficiaries, they should consider obtaining the informed agreement of the other beneficiaries.

However, HMRC accepts the principle of a partial appropriation of property to beneficiaries and has assessed gains on the basis that they are apportioned over the differing interests, which will include a share of the property remaining in the estate. Whilst this would appear inconsistent with the decision in Crowe v. Appleby, HMRC has consistent raised assessment for CGT on the basis of shared ownership.

Paul Saunders

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Presumably the executors could appropriate both properties to the residuary beneficiaries subject to charges to cover any IHT liability and the pecuniary legacies as necessary.

Or appropriate one of the properties to the two residuary beneficiaries; and appropriate part of the other property to each residuary beneficiary but retaining sufficient interest to discharge the IHT and pecuniary legacies (and CGT).

Malcolm Finney