Appropriation of shares in satisfaction of nil rate band legacy

I am currently administering an estate where the Will contains a nil rate band legacy to the deceased’s children, with residue to surviving spouse. The Will incorporates the STEP Standard Provisions (2nd edition) and all of the Special Provisions.

The spouse and children all wish for the PRs to appropriate shares to the children in satisfaction of their nil rate band legacy, and they are all in agreement that the date of death value of the shares should be used when calculating how many shares should be appropriated in this regard (which I understand is possible under Special Provision 22 of the STEP Provisions).

The value of the shares has increased significantly since the date of death, which means that, if we proceed on this basis, the market value of the shares being appropriated will actually exceed the IHT nil rate band at the date of the appropriation.

I am unsure whether this will have any adverse IHT or CGT implications for the estate or the surviving spouse (who will effectively be giving up a greater share of the residuary estate than would have been the case had the value of the shares at the date of the appropriation been used to calculate how many shares to appropriate to the children).

Is anybody please able to clarify the IHT and CGT implications of proceeding on this basis?

I am particularly keen to ascertain whether the proposed course of action would trigger an immediate IHT liability for the deceased’s estate, and also whether the surviving spouse would be deemed to be making a PET for IHT purposes and/or a deemed disposal for CGT purposes, in view of the fact that her agreement to the appropriation would result in the value of the residuary estate passing to her under the deceased’s Will being significantly less than had the date of death value of the shares been used for the purposes of calculating the number of shares to be appropriated to the children.

HMRC has previously indicated that where an appropriation is made at probate value, and the assets have risen in value since death, the increase in value may be treated as a transfer of value by the residuary beneficiary(s).

I am not sure of the CGT position.

However, if the beneficiaries of the NRB legacy are all of age and sui juris, I suggest the IHT and CGT concerns could be nullified by use of a deed of variation. The variation would provide for the NRB legacy to be replaced by a specific gift of the shares in question. The date of death value would apply and the children would take as “legatees” under s.62(4) TCGA 1992 provided that the CGT declaration is included. Such an arrangement does not constitute “consideration” for the purposes of s.142(3) IHTA 1984.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

The acquisition of an asset as a legatee includes an appropriation by the PRs in or towards satisfaction of a pecuniary legacy or any other interest [TCGA 1992 s62(3)].

Hence, the base cost to the children of the appropriated shares is their probate value.

Malcolm Finney