I am dealing with an estate that has four properties. The three executors under the Will are also the residuary beneficiaries; we have a Grant of Probate with power reserved to two of them.
Two of the properties were sold for less than the probate values and the plan was to go back to HMRC and file a IHT38 to claim the IHT on the difference.
The other two are rented and the plan was for the residuary beneficiaries to keep these properties until prices rose to above probate value and then to sell. The properties were therefore appropriated by way of a Deed of Appropriation to the three of them (and their spouses) so they could receive the rental income in the interim.
They have now decided to sell the two remaining properties, each potentially at a loss on probate value.
Once sold, can I go back to HMRC and claim the IHT on the difference between probate value and sale value on the two appropriated properties?
If the PRs paid the IHT (presumably on obtaining probate) but the sale of land is by the residuary beneficiaries (as seems to be the case here) then no relief is available.
A sale can normally be effected by the PRs to a beneficiary with relief if the sale is of a qualifying investment, not in the case of land (the case here being land). Appropriations of qualifying investments may according to HMRC constitute a sale and relief obtained.
Thanks Malcolm. My understanding is that an Appropriation is an “earmarking” of an asset for the beneficiaries and is effective to transfer the beneficial interest in ‘equity’ to the beneficiaries. It therefore works as an Assent of the relevant share of only the equitable interest not the legal interest, which remains with the PR.
I think we have only allocated the beneficial interest and the legal interest remains with the PR who will sell the properties and will presumably be entitled to claim the IHT refund.
An appropriation is not merely an “earmarking” of an asset, but the formal release of that asset from any claims the personal representative might have over it in respect of liabilities of the estate, etc. Once appropriated, even if significant further liabilities arise I the estate, the personal representative has no right to call back the asset or require the beneficiary to contribute to any shortfall within the estate by reference to the appropriation of that asset.
It’s worth looking at the actual wording of s.191(1) IHTA 1984 – below:
Where—
This specifies that the sale must be made by the appropriate person ACTING IN THE SAME CAPACITY under which they paid the IHT.
When the personal representative paid the IHT, they were acting as PR. Following appropriate of the properties to the beneficiaries, the personal representatives were no longer acting as PR, but as bare trustee for those beneficiaries when they made the sale. The fact that the legal title may have remained in the name of the deceased or the PR is by-the-by.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
It appears part of the text of my earlier posting dropped out, so re-posting with the full text:
An appropriation is not merely an “earmarking” of an asset, but the formal release of that asset from any claims the personal representative might have over it in respect of liabilities of the estate, etc. Once appropriated, even if significant further liabilities arise I the estate, the personal representative has no right to call back the asset or require the beneficiary to contribute to any shortfall within the estate by reference to the appropriation of that asset.
It’s worth looking at the actual wording of s.191(1) IHTA 1984 – below:
Where—
This specifies that the sale must be made by the appropriate person ACTING IN THE SAME CAPACITY under which they paid the IHT.
When the personal representative paid the IHT, they were acting as PR. Following appropriate of the properties to the beneficiaries, the personal representatives were no longer acting as PR, but as bare trustee for those beneficiaries when they made the sale. The fact that the legal title may have remained in the name of the deceased or the PR is by-the-by.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Paul spells out the issues with greater clarity than my own post but I think we are both of the view that loss relief is not available.
The typical memorandum of appropriation will include a statement along the lines of "As from the date hereof we the Executors declare that we hold the said [property] as bare Trustees for ABC not as PRs
of XYZ… ".
Hence, as stated by Paul, the sale post appropriation is not made by the PRs qua PRs but as bare trustees.
IHT 35 and 38 each require confirmation of the capacity in which the form is signed.