I’m reporting on the sale of assets in a share portfolio owned by an estate, and their reinvestment into the beneficiaries name. I had expected this to be a case of selling the portfolio to cash, executors paying CGT, giving residue to beneficiary, beneficiary reinvesting into new portfolio in their name.
But the adviser wants to transfer the stock in-specie, to avoid having to be out of the market and to avoid the CGT.
Previously when I’ve done this there has been a deed of appropriation. My question is does this have to be a formally drafted legal deed?
I suspect it does, and that a simple in-specie transfer by the adviser would be ineffective for CGT (and could have other adverse consequences!)
I’m an adviser who has handled similar transfers and I agree that a deed of appropriation is essential.
CGT is unlikely to be an issue unless the gain since death has exceeded the estate’s annual exemption.
There is no legal requirement for a deed of appropriation. Provided that the appropriation is evidenced in writing, and signed by the executor(s), that should suffice (although it might be noted that there is no specific requirement than an appropriation be evidenced in writing, other than where land is concerned).
The transfer of the portfolio to the beneficiary could be more complicated, as the portfolio manager will need to comply with its identification and anti-money laundering requirements before it could open a new account and transfer the investments across. The portfolio manager does not need to see evidence of the appropriation, the executor(s)’ instructions to transfer should be sufficient.
Even if, for some reason, the beneficiary is unable to satisfy the portfolio manager’s identification and AML requirements, so that legal title stays with the executor(s), the executor(s) will be holding on bare trusts for the beneficiary who will have acquired the constituent parts of the portfolio as “legatee” under s.62(4) TCGA 1992 for CGT purposes.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
If there is a sole residuary beneficiary there is no need for an appropriation. A simple share transfer with a record being made in the accounts is sufficient.
However if the shares are in nominee name then a memo of appropriation will be sensible to provide evidence of the transfer of the shares to the beneficiary.
If assets are being transferred to one of a number of beneficiaries and one gets the shares then an appropriation is used to record this and the value at which they are transferred for distribution purposes.
The appropriation need not be a deed. A memorandum is sufficient signed by the executors, and the beneficiary if s.41 AEA 1925 has not been excluded.
Is there a requirement where the subject of the memorandum/deed of appropriation is a house that the memorandum/deed is witnessed? In this circumstance the memorandum of appropriation is signed on exchange of contracts by the PRs and the Beneficiaries, i.e. all parties, but is not witnessed, is this still effective appropriation?
I suppose my question is does appropriation where the subject includes a house, need to be done by way of a deed or a memorandum. My understanding is as long as in writing re a property it doesn’t have to be by way of a Deed, ie witnessed.
Does a document called a ‘memorandum of appropriation’ with virtually all the same details as a Deed, save it is called a ‘memorandum’, is dated and signed, but not witnessed, does this document suitably appropriate where the memorandum of appropriation concerns a property ( a house )?
For example where the PRs have probate and a house is being sold directly to a third party but not being assented to the beneficiaries first , eg where there is mortgage so can’t be assented first and the PRs will need to sell. So pre-exchange of contracts on the sale the prs appropriate the property to the beneficiaries by way of a document called a memorandum which is signed and dated but not witnessed. The PRs would still sign the Transfer to the Buyers on completion, which is would of course be witnessed.
The reason for for the appropriation might be so that individually the beneficiaries pay capital gains tax, rather than the PRS…
Is this appropriation effective, even though the signatures to the document effecting the appropriation are not witnessed? Does such appropriation need to be done by way of Deed?
to follow up on this point. I have just been asked whether a DoA can be done after exchange on contracts on a property sale. I have only ever come across them being done before, as exchange is the relevant date for CGT.