Deceased died less than a year ago. Will creates a Discretionary Trust for entire estate. House is due to sell for £25k more than probate value.
I want to be able to claim both the beneficiary’s CGT allowance and the Executors’ CGT allowance. My initial plan was to appoint the house out to the beneficiary under s144 and also do a Memorandum of Appropriation at the same time so that 50% was sold by the estate so as to keep the Executor’s allowance. But - if I’ve appointed the house out to the beneficiary, I’m not sure the Executors would have then have an allowance as they would be selling as bare trustees ? (As they would if from the outset, the Will had given the house to the beneficiary which is the effect of the Deed of Appointment of course)
Or - is it the case that Executors are just deemed to have a CGT allowance on any disposal they make and so if a Will contains a specific gift of a house to a beneficiary, Executors would always be able to use their allowance as well as the beneficiary’s, so all I actually need is the Deed of Appointment and no memo of Appropriation?
Or - I then wondered if instead, I could give the beneficiary a cash sum equal to a half share of the house by way of Deed of Appointment and then do a Memo of Appropriation so that 50% of the house is appropriated to her. But - that might mean the other 50% is now sold by the Trustees of the Disc Trust rather than the Executors and Trustees only get half the CGT allowance…
So - I am tying myself up in knots and would appreciate some clear thinking!!
Assuming the residue has not been ascertained, (and that is a separate thread in of itself), then you could potentially appropriate half the property to the beneficiary and keep half in the estate. (Going a step further, you could in theory appropriate half/two thirds to the beneficiary and their spouse.) If the subsequent sale were made then you have two/three allowances.
My understanding is that if the residue has been ascertained, then the sale is effectively being made on behalf of the discretionary trust and you are stuck with the CGT liability. There are other considerations as to the actual increase and whether the death value was ascertained for IHT purposes, but in principle, I think there is potential for CGT mitigation. Having just re-read my post, if there is any risk that the residue has been ascertained, you could use s.144 and appoint to beneficiary (and spouse if applicable), and they would then sell using their allowances. I think that works.
There’s no possibility that the residue can have been ascertained, unless Sarah is going to do the work involved in the sale of the house and her thoughts about CGT for nothing.
If appointing any share of the house to the beneficiary, you will need to ensure that it happens before the executor appropriates any of the property to the trustees. The beneficiary should then be deemed to have acquired as legatee under s.62(4) TCGA 1992.
If the share of the house is appointed to the beneficiary once it has been appropriated to the trustees, then a CGT charge will arise on the appointment, as the disposal by them would likely to be viewed as similar to the expected sale price. As the appointment would be read back to the date of death, the trustees’ gain cannot be held over under s.260 TCGA 1992.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
I agree with Paul, but it should be noted that the house will vest in the trustees on the ascertainment of residue, even if there is no specific appropriation from the executors to the trustees. See CG31430.
Therefore if the residue is ascertained, the trustees will be making a disposal for CGT purposes. If not, the trustees can appoint half the house to the beneficiary to make use of both allowances and the beneficiary takes at death value.
Whether the residue is ascertained or not is very much a grey area - see CG30700, CG30800, CG30810. HMRC usually look for early ascertainment, but I have never come across this ever happening. Would be interesting to see other member’s views.
Thank you all so much for the very helpful replies.
Julian, that really made me smile - you’re right, definitely not working for nothing
So - am I right in concluding that if assets only pass to the Trust when the residue is ascertained ( and the conclusion is, it isn’t), in this case the house is still in the estate, so I appropriate half of the house to the beneficiary ( who doesn’t have a spouse) but I don’t do a Deed of Appointment from the Discretionary Trust, because the house hasn’t passed to it yet given the residue is unascertained?
Thanks again for the assistance! V much appreciated.
As the will creates a discretionary trust of the whole estate, unless an interest in the house is appointed to the beneficiary they have no right to it, either in law or in equity.
If the will includes a power for the executors to exercise the “trustees’” discretion, then they should make the appointment, so that the beneficiary receives the interest in the property as “legatee” under s.62(4)TCGA 1992.
However, if the power is vested only in the trustees, then they can make the appointment before anything is appropriated to them, directing the executors to distribute the property to the beneficiary. The executors will then need to appropriate the relevant interest to the beneficiary before the sale otherwise it will still be within the estate. S.62(4) TCGA 1992 will then also apply to the beneficiary
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
