CGT on disposal by Executors and rescinding contract

Hi can anyone help please. Our conveyancing team have been asked to rescind an exchange of contracts because the seller’s probate team have failed to do appropriations to the beneficiaries before exchange.

While I have sympathy for the seller’s solicitors it doesn’t sit right with me. I’ve spoken with our accountant and he can’t provide a definitive answer.

Any thoughts?

Suggest you look at the House of Lords decision in Jerome v Kelly, 2004 as that might apply in your circumstances.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

Paul, thanks for this – it’s some heavy reading :blush:


The main judicial insight into this issue is contained in the Jerome v Kelly litigation, decided finally at [2004] UKHL 25 but the judgments below are also worth reading.

The over-simplified facts were that A contracted to sell land to B but before completion transferred his entire equitable interest in the land, subject to the contract, to C, a non-resident. The plan was that the disposal would thus be made by C with much of the overal gain escaping UK tax at that time.

The question what does a binding contract of sale actually do for CGT purposes was considered but the sale was in fact completed. The main issue was who disposed of what and when. In particular the Lords did decide that what is now s28 TCGA 1992 only affects the timing of a disposal where a prior contract is completed and the disposal of the asset takes place under it; it does not determine whether a disposal has occurred at all or by whom.

So whether a contract without completion can ever effect a disposal and, if it does, what it disposes of remain open question and the particular terms of the contract may be significant. A contract under English law confers some kind of equitable right on the buyer but in this case it did not prevent the seller A from disposing of his entire equitable interest in the land to C who completed. It must logically follow that whatever was disposed of by the contract to B, at least with hindsight, was something different but that substantive issue, and its disposal value, was not before the Court. A warning was sounded that CGT has to apply in all 3 jurisdictions of the UK and the effect of a contract may differ among them.

So the case does not deal directly with a contract that is never completed for whatever reason but for instance by rescission. Lord Walker touched on this in an obiter dictum. I do not see why a rescission by agreement rather than by breach or an express contract term would be analysed differently.

“32. It would therefore be wrong to treat an uncompleted contract for the sale of land as equivalent to an immediate, irrevocable declaration of trust (or assignment of beneficial interest) in the land. Neither the seller nor the buyer has unqualified beneficial ownership. Beneficial ownership of the land is in a sense split between the seller and buyer on the provisional assumptions that specific performance is available and that the contract will in due course be completed, if necessary by the Court ordering specific performance. In the meantime, the seller is entitled to enjoyment of the land or its rental income. The provisional assumptions may be falsified by events, such as rescission of the contract (either under a contractual term or on breach). If the contract proceeds to completion the equitable interest can be viewed as passing to the buyer in stages, as title is made and accepted and as the purchase price is paid in full.”

The corresponding position for an IHT “disposition” would seem to be similar and for SDLT too save that s44(2) FA 2003 is subject to the doctrine of substantial performance.

Jack Harper

Thanks Jack

That makes the position very clear! I appreciate your help…