I am seeking clarification on the following position. Where a deceased leaves a specific gift of property in their will to a sole beneficiary, if the personal representatives sell the property before transferring legal title to the beneficiary, who is liable for any capital gains tax: the estate or the beneficiary? My preliminary view is that the liability remains with the estate.
My rationale is that s.62(1) TCGA 1992 states a personal representative is deemed as acquiring the deceased’s assets for a consideration equal to their market value. s.62(4) specifies a condition where a person can acquire an asset as a legatee (as defined in section 64) and as a result no CGT will accrue to the PRs and the legatee will be treated the same as the PRs were in s.62(1). s.64(3) defines what is meant by acquiring “as a trustee” and states this includes any asset appropriated by the personal representatives in or towards satisfaction of a pecuniary legacy or any other interest or share in the property devolving under the disposition or intestacy. HMRC guidance at CG30700 further specifies during the administration period the liability for CGT on sales of assets from the estate falls on the PRs unless they have taken specific steps to vest the ownership of the assets involved in legatees in advance of the sale. This leads me to believe as the PRs did not take steps to transfer the legal title to the beneficiary, the sale is deemed as being made by the PRs and CGT is therefore an estate expense.
Contention arises when we consider the HMRC guidance at HS282 which states for CGT purposes, a legatee is someone who benefits from a testamentary disposition (usually a will). The guidance states a further position that the assets the deceased owned on the date of their death are treated as though they had passed to the personal representatives or other person to whom they pass by law on the date of death, at their market value on that death. This includes any joint interests, which in effect pass immediately to the survivors. This means that, when the administration of the estate is complete, the remaining assets are: passed to the legatees, treated as though they were passed to the legatees on the date of death, at their market value on that date. Further, the common law position regarding income tax at Re Rooke, Jeans v Gatehouse [1933] Ch 970 which established a specific beneficiary will be liable for costs relating to property he inherits that arise between the testator’s date of death and the assent of the property to the beneficiary. The beneficiary would also usually be entitled to any rents or profits from the property from the date of death. It seems difficult to rationalise income tax liability being borne immediately by the beneficiary while the CGT liability remains with the PRs due to an appropriation not yet having taken place. The HS282 guidance also appears to simplify and broaden the scope of what is otherwise specified within the TCGA 1992.
Any insight into which line of thinking is correct, who shall be responsible for the CGT and why, will be greatly appreciated.
I have always understood that until appropriated to the beneficiary(s) entitled, any gain on the disposal of a specifically gifted asset was taxable on the PRs.
Upon appropriation to the beneficiary(s), the doctrine of relation-back applies so that any income and expenses are treated as those of the beneficiary(s). However, if the asset has been sold before appropriation the beneficiary(s) are entitled to the net sale proceeds less the costs of maintaining the asset (but with the benefit of any income).
Although assessable on the PRs, I would not see the CGT as being a liability of the residuary estate, but a cost attaching to the specifically gifted asset(s) in similar way to the actual costs incurred in the sale.
If the sale has yet to complete, it may still be possible to shift the CGT directly to the beneficiary(s) if an appropriation is made before completion, mindful of the House of Lords decision in Jerome v. HMRC [2004] UKHL 25.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
The solution is dependent upon whether the asset is no longer required for administering the estate. If it is not then at that point the equitable interest in the asset vests in the specific legatee; the assent of the PRs can be implied because writing is not required as it vests by operation of law. Legal title is only relevant in that if it is expressly transferred by a written assent it will carry the equitable interest with it provided that has not already passed.
If the PRs have to sell the asset to meet estate liabilities ipso facto they are chargeable to CGT. If it is sold by them because it is convenient but not essential the legatee is chargeable because, almost certainly the facts will support the argument that the equitable interest has already vested in them. PRs can always expressly assent to the legatee but it would be actionable by other beneficiaries if they did so knowing that the asset might yet be required for administration.
PRs can sell any asset in the estate for admin purposes but they should be slow to sell one specifically bequeathed as presumptively contrary to the deceased’s wishes. If they must sell, the specific legatee may have a claim for reimbursement, if the sale proceeds are used to meet liabilities, against beneficiaries higher up the order in Sch 1 AEA 1925.
It is often SOP for PRs to consider whether it is best for them to sell in that capacity or assent to the legatees and in the latter case sometimes after taking an equitable charge over the asset for the unpaid estate liabilities which the transferee will have undertaken to pay directly e.g. out of the sale proceeds.
The base cost of the asset will be the same whoever sells. The plan needs a careful consideration of the CGT respective outcomes. The legatee(s) may have better annual exemption, losses, or rates of tax. PRs have to watch out if they sell at a gain that they do not later sell an asset at a loss which cannot be carried back to the earlier tax year of the gain.
For income tax any income during the admin period will belong in principle to the specific legatee but is only taxable as and when and if received. It may be needed like any other asset of the estate for admin and if so compensation may be due as mentioned above.
During the admin period no beneficiary has a legal or equitable interest in any asset of the estate until the AP ends as regards that asset. The recent case of Hilton v Woolfe [2025] EWHC 2285 (Ch) analyses the juridical nature of the beneficiary’s interest in an unadministered estate. Tax law has to fit around it e.g. s.91 IHTA where “interest in possession” includes an outright interest like an absolute interest in a specific legacy. CGT adopts the approach you have researched and discussed above.
I think my only dissent from what Paul says is that I believe that the relation back rule operates automatically to vest the equitable interest, the specific legatee is regarded as always having been entitled to it. It does not need an appropriation. The only additional formal action would be a written assent or other document like a share transfer form or TR1 in order to transfer the legal title. If the specific legacy was of a purely equitable asset no legal title would be in point.
Thank you for your prompt response on this question. I acknowledge your ultimate position of any gain being taxable on the PRs. You go on to state the CGT would not be a liability of the residue but rather a cost attached to the specific gift.
In this instance, the sale has already completed and sale proceeds are with the beneficiary. All liabilities of the estate have been settled and there are surplus funds for distribution. In this instance would your view be to deduct the CGT liability from only the specific beneficiary’s entitlement of residue, or would you deduct the CGT liability from the overall estate funds reducing the monies owed to all remaining residuary beneficiaries?
Thank you for your comprehensive response. I believe your reference to implied assents may have opened up further questions. I cannot establish your conclusive position for the scenario put forward.
The position had been the asset was no longer required to administer the estate. All liabilities had been settled and the beneficiary requested the sale of the property to receive funds and complete a simultaneous purchase. I acknowledge your views on the equitable interest potentially being assented by implication - I have reviewed the case you referenced and it appears the authority specifically applies to implied appropriation of the beneficial interest in an asset particularly where there is a Trust and the continuing behaviour by the Trustees gives effect to the terms of the Trust creating the implied conditions. The case seemed to reaffirm written assent is required for a transfer of legal title.
In light of the case you kindly referenced, is it correct to summarise your position as supporting the view the PRs would be responsible for the CGT here, as although the equitable title may have been assented by implication, there has been no legal appropriation and so, the PRs should settle the CGT through estate funds?
Yes, because the legatee can only give that instruction if he has become the equitable owner. During the AP his equitable ownership is in suspense and he cannot lawfully so instruct the PRs.
Yes, I would be inclined to deduct the CGT liability only from the specific beneficiary’s entitlement, rather than charge it against residue before division.
Let’s say the property was accepted for probate at £500,000 and sold for £603,000, net of sale costs – a gain of £100,000 (after the £3,000 annual exemption).
Assuming it to be UK residential property, there will be a CGT liability of £24,000. It would seem wholly inequitable for the beneficiary to make a £100,000 gain but have his fellow beneficiaries pay, perhaps, the lion’s share of the CGT. And if, say, the beneficiary had no interest in residue, why should the residuary beneficiaries pay the whole of the tax?
I would work on the principle the tax should come out of the profit/gain – it’s so much easier for the beneficiaries to understand (and accept).
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
I disagree with Paul. An appropriation is in point where the legatee is NOT entitled to the asset e.g. is a pecuniary or residuary legatee.
Not every specific legacy requires the transfer of a legal title. A purely equitable interest does not e.g. an interest in a trust fund like a reversion or remainder.
If the specific legacy asset is sold in the course of administration to pay an estate liability the tax cost, chargeable on the PRs, is an administration expense and must be borne in the order of priority set by the AEA. The specific legatee will only bear it if there is no one else to bear it. The order of priority may be varied by the testator. He can make his gift subject to IHT, unless ss36-42 IHTA ordains the contrary.
So in your estate the AP had plainly ended as regards all remaining assets before the sale. The moment that happened the equitable interest vested by operation of law in the specific legatee. No action was required on the part of the PRs to secure that. The subsequent sale was thus for CGT purposes on behalf of the beneficiary (if the PRs were the contracting party) and the gain was his alone for CGT purposes. The legal title if outstanding because registered to the deceased or to the trustees will have to be transferred to the buyer. The legatee has the right to direct that this be done. There are necessary formalities at HMLR depending on how title is presently registered but one way or another they can be insisted upon by the legatee/purchaser.
I disagree. The specific legatee was entitled to the asset itself whole and entire. Had it been transferred to him he could have retained it as long as he wished, perhaps even until death wiping out the pregnant gain. If he disposed of it in his lifetime the CGT would have depended on his personal circumstances. If the PRs dispose of it before his equitable interest vests he has every right to object to receiving only the net of tax value of his gift. His gift should only abate if the estate is insufficient otherwise to pay liabilities.
The statutory order in Sch 1 AEA must be observed unless varied by the testator. Normally this means that estate liabilities, existing at death and incurred during the AP, will fall on residue in preference to a specific legacy.
In the absence of a contrary direction a specific legacy is free of tax. The testator is presumed to understand how that will affect the calculation of residue. I have had to take numerous clients through the potential outcomes of that (and of significant pecuniary legacies) depleting the residue in a way that they might not anticipate. Similarly if they make gifts subject to tax how that may almost certainly compel a sale unless other measures are adopted by the PRs and beneficiaries.
It is most unusual in my experience for a testator to provide for how the CGT is to be borne on sales of assets during the AP. But I had to take a few of them through the possibilities. They tended to be surviving spouses whose estates were highly illiquid e.g. private residence, properties occupied by friends, relatives, former spouses and even lovers, valuable chattels like jewellery or items of sentimental value, unlisted shares—especially large minority holdings with restrictive Articles or Shareholders’ agreements. It does not follow that an asset can actually be sold for its agreed open market value or indeed at all: actual buyers are real and can be unwilling not hypothetical and willing and with “no sale” excluded as a possibility. Of course these are clients who have not factored provision of liquidity into their estate planning at a much earlier date.
You have to discuss (ideally)
how all the prospective tax liabilities will be met and how that will affect what the prospective beneficiaries will actually end up with as opposed to the client’s expectations in a tax-free world. Naturally I had a few incorrigible Ostriches as clients but that is a recipe for family fall-outs and the absurd costs, financial and personal, of post-mortem internecine combat.
I am surprised that there is disagreement between the parties here. Certainly as far as I am aware, unless a specifically bequeathed property is required to be sold by the executors in order to settle the liabilities of the estate, then a sale of the property by the executors must be treated as a sale for the beneficiary of the property who is then liable for any CGT resulting from the sale. Indeed, it would be open to the beneficiary to fund any shortfall required to settle the liabilities so as to avoid a sale of the property. The beneficiary may then of course have to pay SDLT or LTT on the amount paid.
PRs are entitled to sell any estate asset to meet estate liabilities. They should not sell a specific legacy asset unless it is necessary to do so as the testator plainly contemplated that the legatee would inherit that asset.
Sch 1 AEA 1925 is designed to adjust the burden of liabilities and testamentary expenses among the various estate beneficiaries. Case law establishes that a legatee must accept the costs of transfer in specie.
The Schedule has nothing to say about tax liabilities as such. Its enactment preceded the arrival of CGT by 40 years and was itself a codification of previous law. In the real world tax is a given. Two key features of CGT are that the PRs’ base cost is OMV on the date of death and that if an asset is transferred to a legatee it is acquired at that value, whether it is the same at the later date or not, with no gain or loss to the PRs. It is almost as if the Legislature recognised the issue we are focussing on and intended to minimise friction (though in enacting such foresight it would be almost unique).
A third CGT feature is that a disposal by the PRs or, after transfer or vesting of the equitable interest, the legatee of an asset which since death has changed value has very different CGT consequences which that same benevolent body has not chosen to cater for. Most radically an asset transferred to a non-resident which has risen greatly in value is not excepted from the no gain or loss treatment and can be disposed of free of UK tax on the gain (as long as it is not land and land-backed shares). This contrasts with the refusal of hold-over relief.
If the asset has to be sold during the AP the tax is an administration expense. In applying the Schedule the specific legatee is entitled to preservation ONLY of the value that the asset had on death for probate value. (There may be a theological controversy if that is not the same as OMV for tax e.g. via special IHT valuation rules like related property and substituted sale proceeds of that and land and shares). The legatee is not entitled to any surplus if the PRs sell it at a gain net of tax, so therefore is not restricted to the actual sale proceeds if a loss arises, which may have an offset tax value to the estate or not. This must surely work identically in each direction. Administration of estates is the province of Equity: it would be unconscionable to deprive a legatee of such a surplus if he could be charged with such a deficit.
The Schedule ordains an order of priority for meeting liabilities. Any tax on the disposal will fall on residue as this is in Category 2 and is normally first in the pecking order. But any net of tax proceeds accruing to the PRs will also accrue to residue; similarly residue will be reduced by a loss on sale and increased if that loss reduces a gain on the disposal by the PRs of another estate asset during the AP. If residue is exhausted any excess liabilities will eventually, after exhausting pecuniary legacies in Category 5, deplete specific legacies in Category 6. There must be an overall surplus or the estate will be insolvent. The testator can change this order but in my experience rarely does so unless the Will drafter prompts it, apart from choosing whether to make a gift subject to its own IHT.
So my analysis is that charging the PRs CGT bill to the estate is equitable because the specific legatee is NOT directly entitled to net of tax proceeds of an asset sold during the AP. The opposite is true once the AP has ended because the equitable interest automatically vests in the legatee and PRs sell as his nominee or bare trustee under s.60 TCGA. This underlines that the PRs should not accept that the AP has ended as regards that asset if they still need it to meet liabilities.
It also points up why it is necessary for there to be a binding agreement between the PRs and legatee if the latter is to be able to take the asset subject to discharge of an estate liability, unless it is novated, including a PRs’ charge over the asset, more secure than their equitable lien and the legatee’s purely personal liability to them.
I agree with Jack’s analysis. The CGT liability on the sale of a specifically bequeathed property by the executors during the administration period falls upon the personal representatives and is treated as an administration expense borne by residue. That result is dictated by the Taxation of Chargeable Gains Act 1992 and confirmed by HMRC’s guidance/notes.
Under section 62(1)(a) TCGA 1992, the deceased’s assets are deemed to be acquired by the personal representatives at their market value at the date of death, and under section 62(1)(b) there is no disposal on death itself. Section 62(3) treats the personal representatives as a single continuing body for CGT purposes. Section 62(4) then provides that when a legatee becomes absolutely entitled to an asset, no chargeable gain arises to the personal representatives and the legatee is treated as if they had acquired the asset at the same time and cost as the personal representatives. It follows that any disposal before that point is a disposal by the personal representatives.
HMRC’s Capital Gains Manual at CG30700 makes the same point: “During this period the liability for Capital Gains Tax on sales of assets from the estate falls on the personal representatives unless they have taken specific steps to vest the ownership of the assets involved in legatees in advance of the sale.” HS282 (2025) (Death, personal representatives and legatees) also confirms that the personal representatives are responsible for CGT on any gains arising during the administration of the estate. The SA905 Notes (Trusts and Estates Capital Gains) (2025) reiterate that while no gain or loss arises on a disposal to a legatee, any earlier disposal by the personal representatives remains theirs.
A specific legatee is entitled to the value the asset had at death, not to any increase in value afterwards. If the executors sell the property before assent, the CGT is a liability of the estate and falls on residue under Schedule 1 of the Administration of Estates Act 1925. Only if the asset has been assented to the beneficiary or they have become absolutely entitled under section 60 TCGA would a later disposal be taxed on the beneficiary.
Accordingly, both the legislation and HMRC guidance support Jack’s conclusion that CGT on a sale by executors of a specifically gifted property before vesting falls on the estate and is borne out of residue.
Encouraging to have a bit of support. (This is entirely lacking at home where a prophet is without honour in his own land, especially one with XX chromosomes).
I will now correct a small but still erroneous technical misstep in an earlier post of mine The sale proceeds of a specifically bequeathed asset in the course of administration are not strictly an asset of residue but rather of the estate as a whole. Residue will usually be the incipient category to benefit but also the first in order of jeopardy to suffer from allocation of the burden of payment of liabilities and thereafter the priority claim for reimbursement up to equivalent value of the specific legatee’s gift obviated by its necessitous sale by the PRs.
It’s the age old tale - solicitors have allowed themselves to wear so many hats that it is impossible to manage all scenarios.
We act for the Executors. If the Will says “I give my house to Jack”, then assent it to Jack (assuming Estate is insolvent etc).
Instead, if there is a sale, we want (and sometimes need) the sale fee. In my case, the CGT was £420.00 and I’ll pay it because Kyle’s post made me apply my mind to the issue and, after reviewing Jack’s analysis, I agreed with him.
Imagine it was significantly more. There could be no defence to a claim by beneficiaries for Devastavit, where the Executors sold the Property, merely because they could do so.
1 A legatee is a volunteer. If it transpires that he has received more than his strict entitlement he is at risk of recovery of the excess, subject to limitation.
2 Most PRs, at least professionals, will not be in the regular habit of knowingly devastavit-ing or indulging in frequent awkward correspondence with their insurers. Non-culpable overpayment is likely to be exonerated under ss.61 and 69(1) TA 1925.