Capital Gains Tax query

Mrs B died in October 2014 intestate. She left a husband and a daughter from her first marriage. The estate included a house in her sole name valued for probate at £290k. The total estate at date of death was sworn at £380k. Mr B died in January 2015, also intestate. He left three children, all US citizens and US domiciled. Due to a probate action initiated by Mrs B’s daughter, both estates have been held in abeyance until recently, when the matter settled. The house in Mrs B’s estate is currently going through a sale at an agreed price of £390k, so a gain of £100k. The CGT allowance of Mrs B is unavailable to claim due to the passage of time which has elapsed since her death. Ordinarily, I would consider appropriating the property to the residuary beneficiaries before completion, to make use of their own CGT allowances. However, the beneficiaries of Mrs B’s estate are Mr B deceased’s estate, and Mrs B’s daughter who receives half of the residue. I have obtained accountancy advice and understand that the US citizens would be able to utilise the individual’s CGT allowance to offset against the gain, however, they are not the direct residuary beneficiaries of Mrs B’s estate. I am wondering if there is any other way of mitigating the Capital Gain in this matter?

Rosemary Johns
Birchall Blackburn Law

Neither estate of Mr or Mrs B will have the annual CGT allowance, as this is available for the year of death and the 2 succeeding tax years only.

The regime for the taxation of capital gains accruing to US citizens is different to that in the UK. I understand that, with inherited assets, the assessable gain is based upon the original acquisition value, not the date of death value. Accordingly, the US beneficiaries could be taxed on the gain accruing since Mrs B bought the property. However, the beneficiaries would need to obtain their own US tax advice on this aspect.

The most tax efficient way forward might be to appropriate the property to the daughter and Mr B’s personal representatives. The beneficiaries of Mr B’s estate should then obtain their own tax advice and, if appropriate, ask that his personal representatives appropriate his share of the property to them before the sale.

Paul Saunders

I would reinforce Paul’s advice that the US beneficiaries should each be
advised to take appropriate “local” advice. I dealt with a case some years
ago in which a US beneficiary agreed a certain course of action, but later
found that the relevant state and federal taxes were not consistent…
Kevin Mullen