Sale of Asset at Residuary Beneficiary's Reqiest

If sale of an asset is not required in order to pay a liability nor for any other reason connected to the administration, should the executors sell an asset if the residuary beneficiary requests they do so, or should they simply assent the asset the residuary beneficiary and leave the sale to them?

Personally, I would sell the asset unless there is a compelling reason not to. What the asset is, would also impact the decision making. For example, a property, or shares etc… is there a reason why the executor does not wish to sell?

1 Like

A right to residue is to all the assets comprised in it, or a share thereof. It is not a right to any particular asset or to have an asset appropriated. Where shares of residue are concerned and an asset is either indivisible, like a chattel, or to divide it would reduce its value the executors may well be at fault if they do not transfer it in specie to the residuary legatees in specie or sell it if it is not necessary for administration and the legatees do not consent and suffer detriment. Snell says: “In general, the assets should be distributed in their unconverted state”. Any contrary provision in the will prevails. Often an appropriation can be made without consent. By analogy with trusts the implied power of sale of PRs during the admin period is thus overridden in a Saunders v Vautier type of factual situation.

But the entitlement of several beneficiaries to a vested absolute interest in the capital of a trust is more complicated. History has had a big part to play and involves the distinction between personal property and real property, whether there was a trust for sale with power to postpone, and how long that power survived, plus Saunders v Vautier. The general rule is that each beneficiary is entitled to a part of each and every asset and so as regards personal property in specie distribution was and is the rule, the trustees’ power of sale ceasing on the vesting. Exceptions are mortgage debts and some shareholdings (see case below). With real property transfer in specie was the invariable rule. Now TLATA 1996 applies and proceeds of sale of land are no longer personal property.

In Lloyds Bank v Duker [1987] 3 AllER 193 the PRs were ordered to sell because a specie distribution pro rata to the respective shares of beneficiaries in a shareholding in an unquoted company would give one beneficiary a controlling holding and the others minority holdings which, in value terms, was detrimental to the latter compared to a fractional part of a control holding. This reflects the general approach of equity that trustees must treat all beneficiaries even-handedly but presumably therefore that must yield to a contrary provision in the trust instrument (quite common). Although HMRC apply this case to “settled property” that is a defined term for CGT and not all trusts fall within in it, though most do: CG37561. The rule in Crowe v Appleby is another example of tax law following trust law in England: CG37540.

Jack Harper

1 Like

Thanks, Jack. That makes a lot of sense. I am still somewhat confused by the fact a share of residue should generally be transferred in an unconverted state and the fact that consent to appropriation is required unless the will says otherwise. That seems to create a problem as the beneficiary may not consent to receiving what one is obliged to transfer to them. The only logical answer I can come up with is that by giving someone their share of the residue in an unconverted state, you are not making an approppriation as you are not giving them something to satisfy their legacy, you are actually giving them their legacy. As you are not making an appropriation, comsent would, on that interpretation, not be required.

A further consideration is that if the asset is sold without being appropriated, the sale will be made by the estate, which will be liable for any CGT. That may be fine if there is only one residuary beneficiary, but if more than one is that a “fair” outcome?

If the sale is made before appropriation, the beneficiary has not received anything on account of their entitlement and, on a distribution of the estate the beneficiaries will each be entitled to their appropriate share of the estate then available for distribution (which will have been depleted by the costs of sale and any CGT payable on that sale). Unless all assets then in the estate are to be distributed in proportion to the beneficiaries’ individual entitlements, the assets will all need to be revalued as at the date of distribution (applying Re Charteris, 1917).

Ideally, before the sale of the asset(s) the beneficiary doesn’t want the assets might be appropriated to all of the beneficiaries in proportion to their entitlement and the sale made as bare trustee, so that the sale costs and any CGT is payable by that beneficiary.

The STEP Briefing Note on appropriations (Briefing_note_Appropriations_E&W.pdf (step.org)), might be helpful in this instance.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

1 Like

I said “often an appropriation can be made without consent”. I should have expanded that. s41 AEA 1925 is the statutory basis and prescribes consent in certain (the most common) circumstances. The Will can override it: subs (6). Older wills routinely dispensed with consent as it caused stamp duty to become payable. Nowadays Wills tend to contain their own power e.g. para 4.15 of STEP Standard 3rd edition. That does not refer to consent at all but the authors’ view in the Detailed Guidance is that the clause overrides the consent requirement in s41. The clause does not disapply s41 in terms so there may be other provisions of it that remain applicable.

And I agree with you that transferring to the residuary legatee all the assets comprised in residue is not an appropriation but the satisfaction of their entitlement. On the facts in Duker such a shareholding comprised in residue should be transferred to the legatees jointly and severally in proportion to their shares in residue. What they can then do with them will then be governed by the company’s Articles and any shareholders’ agreement which they are required to adhere to.

Jack Harper

1 Like

Thanks, Jack. Very helpful response. Given that a sale is not required for administration purposes. Do you feel the PRs should organise a sale if the residuary beneficiaries request it?

I think the PRs would want to have some detailed agreement on the parameters. Paul’s CGT point is relevant. If residue is ascertained the sale would be a disposal by the beneficiaries. Alternatively they could agree with the PRs to sell before residue is ascertained. HMRC’s practice is to be elastic about the moment of ascertainment and generally accept what the PRs say it is, unless someone with standing objects. So the formality of the contract will be key i.e. are the PRs selling as principals and not as agents and if the former they should instruct any professionals e.g. solicitors and valuers and those who compile any reports the buyer requires.

The annual CGT exemption is dwindling so will become less of a factor but some beneficiaries may have personal characteristics, such as losses. With NRCGT non-residence will also a lesser factor: absence of UK taxable income may still help to attract a lower rate of tax on residential property under s1I TCGA (10% or18%) but still full exemption on assets other than UK land and Sch 1A assets. Few DTTs if any prevent the UK taxing local gains, certainly from UK land (“immovable property”, but most other gains from assets disposed of by Treaty non-residents can be taxed if at all in the other State. But watch out for temporary UK non-residents being denied exemption in the UK as in Art 14.6 of the French Treaty and similarly in the Dutch Treaty but not replicated in others e.g. Germany and Belgium

Jack Harper

1 Like

Thank you, Paul. That is very useful.

Thank you, Jack. Very kind of you.

Hi Paul,

I had a look at the briefing note, which was very well written. One thing that is still causing me some confusion is whether, in respect of land, once the appropriation has been made that is sufficient for the CGT to be payable by the beneficiary, not the estate, or whether one also needs to proceed to transfer legal title to the beneficiary? Thank you for your help.

The Legal Beagle

Provided that a valid appropriation has been made (in writing to comply with s.53.(1)(c) Law of Property Act 1925), there is no need for the legal title also to be assented to the beneficiaries for them to be assessed to CGT on any gain realised post-appropriation.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals