Mitigating CGT during administration period

Trusts Discussion
1

I have an estate where there are 2 rental properties and the deceased’s home. We have paid IHT and have clearance. All properties are now under offer and the total gains from date of death are substantial. There are 5 beneficiaries of the residue (just shares, there are no specific gifts of properties), one beneficiary hopes to make a DoV to daughter, one is 16 years old (vests at 21). My queries are:

  1. Can HMRC challenge the original valuations (all RICS valuations) given high gains and short period (6 months) since death. I can’t see how they would but I’ve never seen such increases where HMRC have so quickly issued clearance.
  2. My plan is to appropriate shares of the properties to utilise the beneficiaries’ CGT allowances /any losses they may have and retaining some in the hands of the PR’s to utilise their estate allowance. I will also use the CGT allowances of each res bens spouse where possible. I am assuming that the trustees of the 16 year-old’s fund will suffer higher tax as they will have half the normal allowance. I could potentially appropriate less to those trustees to avoid that consequence. I’d be interested in members’ views as to whether they would discuss with the res bens (all one big happy family!) about compensating the trustees for the 16 yr old for higher tax they may suffer or whether they’d keep the appropriations consistent and let the tax fall where it’s due?
  3. For the DoV it seems I could still utilise the original res ben’s CGT allowance by having one DoV which redirects part with both CGT and IHT writing-back and a second DoV redirecting a different share with just the IHT writing back statement. There’s obviously a consideration whether the costs outweigh the benefit but does the concept sound sensible?

Gareth Marland
Berwin

2

1 - impossible to be sure but if clearance given then very unlikely I would say.
2 - you are assuming that the estate is still in the course of administration to be able to use the PRs allowance, if you read HMRC’s manuals on this topic you will see that their view is that the administration closes quite quickly, there are arguments that can be put to the contrary but you have to take their view into account,
3 - I think your plan works in principle but the order of events is important, until a share of the property has been appropriated to a beneficiary the DOV can only ‘bite’ on a share of the estate (not a specific asset). I would do it - appropriation / DOV / sale.

Paul Davies
DWF LLP

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