Does the capital gain fall on the Executor or the Trustees of the Property Trust

We have been asked to advise on the capital gains implications of the sale of a property.
Mr X died last year. His will gave his house to property trustees (different individuals that the executors) to hold on trust. The trust is a life interest trust under which his widow can occupy the property. The property can be sold and and the proceeds reinvested in a replacement property or reinvested in investments - his widow would then benefit from the income.
The Executor has sold the property. The sale was made without first appropriating the property to the Property trustees.
We need to advise as to whether the CGT on the gain is the Executors, with the usual CGT annual exemption and then tax at 28%. Or whether the gain falls on the Trustees who could then make a claim for principal private residence exemption.
Unfortunately I think the Executor is correct that the gain need to be reported by him and tax paid. Does anyone see this differently?

Surely the executors are holding as bare trustees for the trustees of the trust? If the property had been specifically bequeathed to an individual and the executor sold it, he would be selling it on behalf of the individual. I see no difference in an executor selling it on behalf of the trustees and therefore the fact that the property is occupied by the beneficiary would ensure that PPR would be available.

Patrick Moroney BWL

Thanks Patrick - appreciate your input. I am hoping that is the case. I have been looking to find something in HMRC guidance which would support this view so I can go back to the Executor. The actual wording in the will is “My property share shall mean my share in the property at the date of my death…” and “I give my property share to the property trustees to sell the same (but with full power to postpone such sale as hereinafter directed) and to hold the net proceeds of such sale upon the trusts declared under clause XX …”. I have looked in particular at CG30700 although that part is not particularly helpful. Do you have any suggestions on this.

I assume the sale was made on the instructions of the trustees at a time when it was clear the proceeds were not required by the executors to pay debts etc. If so, it is a sale for cgt purposes by the trustees, the sale having been made on their behalf.

Simon Northcott

In the absence of the executors having appropriated the property to the property trustees, I have difficulty in accepting that it has been sold on behalf of the property trustees.

However, whilst I believe the sale is one made by the executors in that capacity all is not lost – s.225A TCGA 1992 will allow the executors to claim main residence relief if the widow was living n the property both before and after the testator’s death.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

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May I ask what the wording of the will is creating the ‘life interest’. Is the life interest solely in the testator’s home (or share thereof) or in the whole of the residuary estate?

Thanks Vincent. The life interest is solely in the testator’s home. It is not in the whole of the residuary estate

Pending the the sale of the Property, the Property Trustees shall during the life of his widow, or such shorter period as his widow chooses postpone the sale of the property share and allow the widow to occupy the property rent free

There is provision for replacement property to be purchased or just an outright sale -
and any excess to be invested - there is then a requirement to pay the income from the investments to the widow during her lifetime.

It sounds like PPR should apply - the executors holding the asset as bare trustees for the Property Trustees and the widow occupying as her residence. One assumes the Property Trustees were aware / consented to / ratified the sale. If the sale was not approved and there is a hostile situation it may be more complex and one would want to examine whether liability for the unnecessary tax falls on the executor or those undertaking the conveyancing for the executor. However, the conveyancers terms of business will frequently exclude any advice on taxation. One would assume that the conveyancers would enquire as to the executor’s authority and one would hope that they would examine the will as part of the conveyancing process?