If there is going to be a net gain for CGT purposes on a property in England, between the date of death and the proposed date of disposal; and
If there are three beneficiaries, two resident / domiciled in England and one is resident / domiciled , abroad and the property is appropriated to the three beneficiaries;
Then on the subsequent sale my understanding is that the England beneficiaries can use their CGT allowances (if available), but how would you approach the issue of the beneficiary who is abroad? Is it prudent just to ask them to obtain local advice on whether to go ahead with the appropriation in the first place?
The executor has an annual Capital Gains Tax allowance which is currently £12,000 this is available in the year of death and for the following two years.
It is not my understanding you can use the beneficiary annual allowance to offset the gain.
I am of the view that the will should be administered in accordance with its terms – a one third share to each beneficiary.
The will no doubt gives the (residuary) estate equally between the 3 beneficiaries and does not require any adjustment be made for variation in a beneficiary’s entitlement depending upon the tax regime to which they are subject (and any such provision could well be unique if included). If an executor needed also to understand the tax consequences for individual beneficiaries when considering a distribution, this could make estates with non-UK beneficiaries almost unmanageable.
I suggest the beneficiaries are advised of the intention to appropriate and sell as bare trustee and, if required, their consent to that appropriation sought. It will then be for the non-UK beneficiary to consider if they should take advice.
If you do not appropriate to the non-UK beneficiary (perhaps because they refuse to consent to the appropriation), when the property is sold the gain on a one-third share will be assessable on the executor, who may, or, may not, haver any CGT allowance available. Any CGT payable will be an administration expense and cannot just be charged to the non-UK beneficiary, who will be entitled to receive a distribution of equivalent value to the property appropriated to their fellow beneficiaries.
In effect, the UK beneficiaries will end up paying two-thirds of any CGT on the non-UK beneficiary’s nominal share of the property, plus two-thirds of the sale costs.
If the property is appropriated to all the beneficiaries, consideration will also need to be given to compliance with the non-UK beneficiary’s duty to submit a CGT computation and pay any CGT due in respect of their share.
When you talk about ‘property’ do you mean bricks and motar? If so, there is a requirement to report. See notes from https://www.gov.uk/guidance/capital-gains-tax-for-non-residents-uk-residential-property
You need to submit a non-resident Capital Gains Tax return if you’ve sold or disposed of UK property or land. Land for these purposes also includes any buildings on the land. You must complete a non-resident Capital Gains Tax return if you’re a:
- non-resident individual
- personal representative of a non-resident who has died
- non-resident who’s in a partnership
- non-resident landlord
- non-resident trustee
- UK resident meeting split year conditions and the disposal is made in the overseas part of the tax year
You must tell HMRC within 30 days of completion of conveyance.
Lucy Orrow CTA TEP
Lambert Chapman LLP
Not quite sure what the problem is.
A UK resident but non-domiciled individual is liable to UK CGT in the normal manner on any gain arising on UK situs property ie the remittance basis would not apply to the gain. However, if the individual is a remittance basis user in the tax year of the gain the annual exempt amount for CGT purposes will not be available to him.
It would in the current scenario probably make sense for the property to be appropriated to each of the beneficiaries. I’m not sure that there would be any foreign tax implications for the UK resident non-domiciled beneficiary?
Dear Paul and Richard
Thank you very much for your responses. Your time is much appreciated.
Thank you again,
Thank you so much for your time / response: it is much appreciated,
It would appear from the other posts that I misunderstood the status of one of the beneficiaries who is in fact both non-resident and non-UK domiciled.
Following appropriation, any subsequent disposal by the non-resident will fall outside the ambit of UK CGT unless the asset constitutes UK real property.
Even as a non-resident the annual exempt amount is available and as the rate of CGT is based on the level of UK source income subject to income tax, an absence of such income will allow the lower rates of CGT to apply.
As other posts indicate, appropriate returns and CGT payment will need to be observed.
As a resident of another territory it would clearly be sensible for the non-resident beneficiary to take local advice as to whether an appropriation for him would be tax efficient overall.
Thank you for your comments – much appreciated,