I am currently dealing with an estate and a trust relating to the same property.
X died first in 2020 owning half of the property. At the time, the property was worth £470K, hence his share was valued as £235K in his probate papers. He awarded a life interest to his partner, Y, thereafter to his two adult children.
Y died in 2022. At the time, the property was valued at £525,500, hence her half share was valued at £262,750 in her probate papers. The life interest aggregated with her own free estate, but there was no IHT to pay as we had a full NRB and RNRB and we applied the 15% joint ownership discount. Her half share passes to her three adult children.
The property is now selling for £590K. In the absence of the Valuation Office Agency looking to increase the date of death value, I am looking to see what I can do mitigate the CGT liability on both the trust and the estate.
The trust would have ceased on the death of Y. Do I need to do anything to make use of X’s children’s annual allowances? Do I appropriate the half share belonging to Y to her three children?
Is there anything I have missed or should be thinking about?
I have a couple of thoughts on the IHT position first which may affect the CGT position
Firstly, In a situation such as this where the property is effectively in Y’s estate fully the discount for joint ownership is not in point. There is reference to this in the manual IHTM 15071. Secondly I would question if the full RNRB would be available as one half does not pass to Y’s lineal descendants (I assume X & Y were not married)
As to CGT if IHT is not paid then the values are not ascertained and you fall back onto the CGT rules which I believe would give a discount for joint ownership at death. Should IHT be paid on any adjustments needed because of my comments above or due to the value being increased after the DV is involved then the values will be fixed for CGT purposes. A little IHT could save more CGT.
If the trust came to and end on Y’s death the beneficial ownership for CGT will have passed to X’s children so any CGT on that share will fall on them automatically. As to the share in Y’s estate an appropriation could be used to reduce the exposure, either full or partial if you want to use the exors AE as well.
Re CGT, on Y’s death qua life tenant if the trust set up on X’s death terminates then the trustees are deemed to have disposed of and then re-acquired the trust property at its then MV. The trustees will then hold the property as bare trustees for X’s two children equally beneficially.
On any sale of the property X’s two children will have a CGT exposure on any attributable gain.
Wrt Y’s own 50% beneficial interest there will be on Y’s death an automatic CGT uplift to MV. Either the PRs of Y’s estate may effect the disposal of the 50% held by the PRs and/or the PRs may appropriate some percentage amongst Y’s three children.