Dear forum members
We have varying views among the solicitors in our firm about the following scenario:
H died intestate in 1999. In 2019 his wife went into care and a partner in the firm was appointed her deputy. He discovered that H’s estate had never been administered and that H had been the sole owner of the property occupied by H&W and then just W following H’s death. The property was sold by H’s administrators within a month of W going into care. W is the sole beneficiary under intestacy.
The value of the property on H’s death was £65,000 but the property sold in February 2019 for £220,000. The question is whether the administrators need to make a PPR Relief claim because the property had never been transferred to W and was sold by the administrators.
Your guidance would be very much appreciated.
Blandy & Blandy LLP
I take it that the property was never formally appropriated to the widow.
Whilst the widow may have been the sole beneficiary, based on the values as at the date of death, if the property was never formally appropriated to her the estate will need to be re-valued for distribution purposes now that the property has been sold This may let in H’s children or other relatives to the class of beneficiaries. At the date of H’s death, the statutory legacy was £125,000 where he also left issue and £200,000 where he left no issue. Although interest will have accrued on the statutory legacy, this may not be sufficient to absorb the increase in value within the estate. Whilst current values will need to be used when making any distribution, the class of beneficiaries will be identified by reference to those living as at the date of death.
If the property was sold by the administrators and the widow had an entitlement to at least 75% of the proceeds of sale (at the time of the sale), the administrators should consider claiming relief under s.225A Taxation of Chargeable Gains Act 1992.
In the absence of any such claim, the administrators may be liable to CGT on the full gain, unless they can persuade HMRC that by the time of sale they were effectively holding as bear trustee only. However, if the widow is not the only person now entitled under the intestacy, this could be seen as an attempt to deprive the further beneficiaries of any entitlement.
If all had been administered correctly, the recent sale would have been that of W. W would have acquired the property at market value at date of H’s death. Any gain arising on sale would have been the difference between value on sale less market value on acquisition on H’s death.
PPR would cover the gain attributable to W’s period of occupation and W’s last 18 months of ownership.
The lack of administration of H’s estate would suggest that W never acquired the beneficial interest in the property and the sale has therefore been effected by H’s PRs qua PRs. Any capital gain is thus that of H’s PRs. Under TCGA 1992 s 225A the gain would fall to be exempt.
If there was an argument that the sale was effected by H’s PRs albeit as bare trustees of W then PPR would cover the gain attributable to W’s period of occupation and W’s last 18 months of ownership.
I have experienced something similar to this myself before. My view is that W inherited H’s property under the Intestacy provisions on his death as it falls within the statutory legacy (assuming H did not have other assets in his sole name to increase the value of his estate). The administrators of H’s estate should have assented the property to W and W’s Deputy should have sold it to enable a claim for the appropriate PPR relief. The fact that this has not been done means that the CGT is payable by H’s administrators. The PR’s cannot claim they were selling as bare trustees because they were not - they were selling from the estate.
Bryan & Armstrong