Save CGT by appropriating asset before probate sale - what if one beneficiary does not want appropriation?

Trusts Discussion
#1

The deceased’s home will sell for £200,000 more than the probate value. The gain will be subject to Capital Gains tax.
Gifts to specific beneficiaries have been satisfied from other assets. All the sale proceeds will go to the two residuary beneficiaries (‘RB’s) in equal shares. The executors are RB1 and me.
It is thought that by appropriating half of the flat to each RB before the sale, they will each pay CGT on their respective half share with the benefit of the higher personal tax free allowance and lower personal rates of CGT.
RB1 has no other capital gain and little income. He would like to benefit from appropriation of ‘his’ half share.
RB2 he does not want a half share to be appropriated to him as he feels it ‘not worth it’. I do not know RB2’s financial position.
Two questions:

  1. Is there any rule that prevents RB1 joining with me as executor to execute the appropriation of one half share only to himself; and
  2. Am I correct that if we do proceed with this, RB1 will pay CGT on his gain at his personal rates but the estate will pay CGT on the remaining gain, at the estate’s tax allowance and tax rate. As this tax is an expense of the estate, the estate cannot recover it from RB2. Therefore, RB1 as beneficiary will effectively suffer half the CGT attributable to RB2’shalf share.
#2

If RB 2 is adamant that he does not want to be part of the appropriations then if the executors appropriate 1/3rd to RB1 then on sale he will benefit from his CGT allowance and the estate will have the benefit of the executors’ allowance so each RB will benefit equally from that allowance. Really it would be more beneficial if 1/3 was appropriated to each RB so that all 3 allowances are used.

Patrick Moroney

#3

  1. The appropriation can be made as you suggest and RB1 will have a CGT charge on their 50% interest on sale.

  2. Agreed. The PRs on sale precipitate a CGT charge on their part which is payable out of the residuary estate which means that RB1 effectively also bears 50% of the PRs CGT charge.

Malcolm Finney