I am involved in linked estates of two sisters; call them A and B. A died first leaving everything to B and appointing B as her executor. B died before finalising A’s estate, as the IHT position was not finalised and there were various shareholdings which had not yet been encashed or transferred.
Both estates were subject to IHT, with B’s estate paying IHT on the unadministered estate of A on top of their own assets of course.
The shares in A’s estate were then sold by the replacement PR of A’s estate, making significant gains if using the values as at A’s date of death as the acquisition value. A’s estate has not yet been finalised for IHT purposes, as there are a few matters outstanding which will require a corrective account.
I am only dealing with finalising the IHT in A’s estate and not involved with CGT in A’s estate or anything to do with B’s estate, but those who are dealing with B’s estate have commented as an aside that the acquisition value for CGT on the share sales is the value as at B’s date of death, because that’s the value on which they paid IHT. I found this interesting, given that the capacity in which the shares were sold was as PR’s of A’s estate (not B’s), and the sale was undertaken before the value of the estate was ascertained for IHT purposes, so I had thought that no bare trust arises for the residuary beneficiary. I would have thought that A’s new PR’s would have to declare the gain, based on the date of death values in A’s estate. They haven’t provided any authority for their thinking. Out of curiosity, does anyone have any thoughts on which take is correct?
Where assets are still within an estate, HMRC has been known to apply the rationale from Re King’s Settlement (1964), so that the acquisition value for CGT is the original probate value notwithstanding that occasions which would have attracted a CGT-free uplift had occurred in the meantime.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Correct me if I’m wrong, but I would’ve thought that B’s PR’s only had an entitlement to a chose in action in A’s estate and therefore the valuation at B’s death cannot be used for CGT purposes and as Paul says it is the value at A’s death that is relevant as the acquisition values
Has thought been given to varying A’s estate so it goes straight to B’s heirs? That way the IHT on B’s death on A’s estate is avoided. And the beauty is, of course, that you do not have to elect for CGT to be treated as if the assets did not pass through B’s estate, if that’s not advantageous.
This is how I was looking at it, as I can’t think of any provisions which would allow them to claim B’s death value as the acquisition value for CGT purposes. I did wonder if S.274 TCGA92 would cover it, given that when you fill in the IHT415 you have to give the values of assets as at B’s date of death. However I’m not sure that it can stretch to that as the interest is in the residue as opposed to the assets themselves as you say.
We’re way out of time for a variation for unfortunately, otherwise the solicitors for B’s estate would have been on to that as soon as B died.