I am dealing with the administration of an estate where a Nil Rate Band Discretionary Trust was included in the Will of the Husband and where I think I may now have a CGT liability. The problem is as follows:
Husband died on 2010. In his Will, he left a Nil Rate Band Discretionary Trust and then the residue of his estate to Wife. The executors appointed in his Will were the Wife and X and Y.
The Wife took out a Grant of Probate in her sole name with power reserved to the other executors. She appears to have been under the mistaken belief that the whole of her Husband’s estate passed to her. She therefore took no steps to set up the Nil Rate Band Discretionary Trust and nor did the trustees take steps to appoint the trust fund out in her favour or to agree a loan in her favour.
The Husband and Wife held the family home as tenants in common. The Wife took no steps to deal with her Husband’s half share of the property and it remained in joint names until it was sold in March 2022 when the Wife went into care. The net proceeds of sale were £696,251. The house was worth £450K in 2010.
Apart from the house, other assets in the Husband’s estate where £1116 but the funeral expenses were £4010.
As no steps were taken to deal with the Husband’s share in the property, it would appear (STEP forum) that his half share still formed part of his estate. There was a gain arising on the sale of the property and therefore a potential Capital Gains Tax liability in the Husband’s estate.
I am wondering whether there is any way of avoiding the Capital Gains Tax liability. If the trustees were allowing the Wife to occupy the property under the terms of the trust, then Principal Private Residence would apply. However, I am not aware that the trustees took any steps to allow her to live there.
Had the Wife transferred the property to herself, albeit in the mistaken belief that she was solely entitled to the property, possibly Principal Private Residence exemption would apply. However, it appears she took no steps to transfer her Husband’s share of the property to herself. A second trustee was appointed on the sale of the property to enable the sale to proceed. All of the proceeds of sale were paid to the Wife. She had dementia when the property was sold.
Apart from the property, the other assets in the Husband’s estate appear to have been £1,116, less testamentary expenses of £4,010. There were bank accounts but these passed automatically by survivorship to the Wife.
My first question: is there any way to avoid the CGT liability on the Husband’s estate?
Second question: I assume that the Nil Rate Sum is now deducted form the Wife’s estate and paid to the Husband’s estate and then into the trust. The Nil Rate Band in 2010 was £325K. Do I deduct £325K from the Wife’s estate or do I deduct half the net proceeds of sale of the property, then deduct the CGT liability on the Husband’s estate which is then likely to leave the Husband’s estate less than £325K so that the whole of his estate is used to fund the Nil Rate Sum? The Discretionary Trust is likely to be wound up in favour of the same beneficiaries as the Wife’s estate so I am not intending to add any interest to the amount which should have gone into the trust.
Third question: Is there anything else I should be considering?
I would appreciate any advice anyone can offer.
Brenda Smyth
Solicitor
AMD Solicitors
100 Henleaze Road
Henleaze
Bristol, BS9 4JZ
E: brendasmyth@amdsolicitors.com
