Appropriation of property & CGT

Trusts Discussion
1

I would be grateful for some thoughts on the following:

Partners of the firm are PRs of an estate. We are selling the property at auction with the reserved price set at probate value.

CGT may be chargeable if property will be sold at a gain above PR’s annual exemption. If so, we can appropriate the property to the 5 beneficiaries, before exchange of contract, to use the multiple annual exemptions and absorb the gain entirely.

Can appropriation take place after the hammer goes down, if the sale gives rise to a CGT liability? If not, is there any other way to mitigate the CGT liability?

Any guidance would be greatly appreciated.
Thank you.

2

The House of Lords’ decision in Jerome v Kelly (House of Lords - Jerome (Apellant) v. Kelly (Her Majesty’s Inspector of Taxes) (Respondent) (parliament.uk)) supports the possibility of an effective appropriation for CGT purposes after exchange of contracts.

N.B. The mis-spelling of “appellant” is in the HoL link.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

3

Thank you Paul! this is exactly what I was looking for.

4

I have been reading this thread with interest.
As a supplementary point on appropriation, in a situation where we want to appropriate a property to the various residuary beneficiaries before sale, and one of them has died (after our testator), is it possible to appropriate to their executors or administrators (at this stage it is not known if there is a will or not)?
Many thanks
Nicola Waldman
Hodge Jones & Allen

5

Provided that the will of “your” deceased provides for appropriation without the need to obtain consent from the beneficiaries (i.e. the requirement for consent in s.41 Administration of Estates Act 1925 is negated), I see no particular objection to an appropriation to the estate of the deceased beneficiary in principle.

The personal representatives of the deceased beneficiary might take a different view, though, if it results in a CGT liability in that estate (either immediately or by using the PR’s annual CGT allowance). However, is that an issue that should concern the PRs of “your” deceased?

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

6

Thank you Paul – much appreciated.

Nicola Waldman | Partner | For Hodge Jones & Allen

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7

I have a very similar problem to Liora82 and would be interested to know what the outcome was.

Property sold at auction for considerably higher than expected by all parties (the room on the day rather than any other concerns as to incorrect probate value) and therefore we are now looking at a significant gain for the Estate. I am concerned that the specifics of Jerome and the long period of time between contract and completion will mean that it will not apply in our case when the Deed of Appropriation will potentially only be executed days before the sale completes.

Has anyone had any experience of an Appropriation made after exchange and immediately prior to completion being accepted by HMRC?