Referring back to Simon’s comment re interest on legacies (27 January @ 16:49?), my reading of the Court of Appeal decision in Green v. Gaul is that the limitation period does apply, but that time does not run against the beneficiary until the administration of the estate has been completed. Chadwick LJ specifically commented that in the case under consideration, as the estate in question had yet to be fully administered, time did not run.
Coming more up to date and looking at the most recent postings under this heading, I believe that the CGT point was covered in the Court of Appeal decision in Passant v. Jackson (1985), but have not been able to access the decision to verify this. Essentially, my understanding is that a beneficiary can only receive an asset from the estate “as legatee” (under s.62(4) TCGA 1992), even if they have purchased it.
That does not answer the SDLT point, but I note that Kessler has offered, where his precedent has been used, to act pro bono for anyone defending a claim in which HMRC takes a different view to his own. (If I’ve misinterpreted, I am sure James will correct me)
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Re Paul’s comment on Passant namely “Essentially, my understanding is that a beneficiary can only receive an asset from the estate “as legatee” (under s.62(4) TCGA 1992), even if they have purchased it” is not in line I think with HMRC’s view of the case as expressed below:
“If an estate has insufficient liquid assets to pay its liabilities and a legatee wishes to receive a particular asset rather than it being sold on the open market by the personal representatives the legatee may agree with the personal representatives that he will provide them with sufficient funds to settle the estate’s liabilities in return for them transferring the asset to him. Such an arrangement was considered in the case of Passant v Jackson (59TC230). The Appeal Court held that the arrangement was a sale of the property. So in any case involving a similar arrangement it should not be accepted that there was merely a transfer of an asset to a legatee under cover of TCGA92/S62 (4)”.
The SDLT position depends on whether there is a debt scheme or a charge scheme. Under the former the spouse’s promise to pay the Nil Rate Sum legacy in consideration for obtaining the entire unencumbered residue is a debt and its satisfaction by means of transferring land to the creditor is chargeable consideration: FA 2003 Sch 4 para 8 (1)(a). Under the latter the charge just reduces the value of what he/she receives; the chargee has a legacy and an acquisition of property to satisfy it (and release the charge) is exempt : FA 2003 Sch 3 para 3A (1).
I thought Passant decided that the beneficiary (not being a specific legatee of it) acquired the particular asset at its market value on the date of death and not if higher the price he actually paid to the PRs to obtain it
In Passant the primary issue considered by C/A was whether certain expenditure (basically equal to the shortfall in the solvent estate) paid by the residuary beneficiary was deductible in computing his CGT liability on a subsequent sale by him of his mother’s house (Mrs Passant).
According to Slade LJ, the son entered into a contract of sale with the executors under which the son was to pay the executors the shortfall in the mother’s estate and they would in return assent the house to him. It was stated that there was no retrospective operation of the assent back to the date of mother’s death under AEA 1925 s. 36(2).The son had not acquired an interest in the house at date of death.
The sum paid by the son to the executors (ie the shortfall) was held not to be deductible in computing the son’s CGT charge.
On reading the decision it does seem difficult to conclude that HMRC’s inference from the decision that the son did not acquire his interest qua legatee is correct.
In considering LexisNexis I found the following re: CGT:
Where an asset is unilaterally appropriated to a beneficiary by the Personal Representatives in accordance with a power contained in the will, the individual is deemed to acquire as legatee. This means that no disposal is deemed to be made by the Personal Representatives and the individual’s base cost for capital gains tax purposes is the probate value of the asset.
Where there is appropriation to a legatee by way of agreement between the Personal Representatives and the legatee, the individual technically acquires the asset by way of purchase. In these circumstances, current HMRC practice is to accept that the individual acquires as legatee rather than purchaser provided the Personal Representatives and the individual both agree that this should be so. The same result may be effected by a deed of variation, provided that no external consideration is introduced into the agreement [ the latter wording makes me question whether an IOU would be considered by HMRC to be external consideration resulting in CGT?]
The situation re: SDLT is set out in EF&P - HM Revenue and Customs guidance on stamp duty land tax and debt or charge schemes:
The NRB trustees accept the surviving spouse’s promise to pay in satisfaction of the pecuniary legacy and in consideration of that promise land is transferred to the surviving spouse. The promise to pay is chargeable consideration for SDLT purposes.
— The NRB trustees accept the personal representatives’ promise to pay in satisfaction of the pecuniary legacy and land is transferred to the surviving spouse in consideration of the spouse accepting liability for the promise. The acceptance of liability for the promise is chargeable consideration for SDLT purposes. The amount of chargeable consideration is the amount promised (not exceeding the market value of the land transferred).
— Land is transferred to the surviving spouse and the spouse charges the property with payment of the amount of the pecuniary legacy. The NRB trustees accept this charge in satisfaction of the pecuniary legacy. The charge is money’s worth and so is chargeable consideration for SDLT purposes.
— The personal representatives charge land with the payment of the pecuniary legacy. The personal representatives and NRB trustees also agree that the trustees have no right to enforce payment of the amount of the legacy personally against the owner of the land for the time being. The NRB trustees accept this charge in satisfaction of the legacy. The property is transferred to the surviving spouse subject to the charge. There is no chargeable consideration for SDLT purpose provided that there is no change in the rights or liabilities of any person in relation to the debt secured by the charge.
Whilst Slade LJ, who gave the leading judgment in Passant, was not convinced that the “assent” had retrospective effect (p.168@f/g), the Inland Revenue had accepted the 6 April 1965 value as the taxpayer beneficiary’s base cost. If, for CGT purposes, the beneficiary’s acquisition was not backdated to the date of death, the Inland Revenue should have been looking at an acquisition on 12 August 1966 (or such earlier date upon which any contracts for the transaction were exchanged). Whilst the values might have been the same - £6,000 – the arguments were based on the April 1965 value.
Adoption of the 6 April 1965 value seems to me to support the view that the Revenue accepted s.24(7) Finance Act 1965 applied, so that the beneficiary acquired as “legatee” rather than as a purchaser. As the matter was heard some 20 years after CGT was introduced, I would have expected the Revenue to have formed a definitive view of such issues by then.
In past discussions with HMRC, it has been suggested (and accepted by HMRC) that where a beneficiary introduces funds to enable assets to be appropriated to them, they will still acquire those assets as “legatee” for CGT purposes under s.62(4) TCGA 1992.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
I appreciate I am coming rather late to this thread. Your contributions have however been enormously helpful as I navigate a very similar issue. I have however a remaining point that I would be grateful to receive your insight and direction on.
The residential property is subject to a charge, payable on H’s death, in favour of a nil rate band discretionary trust arising from W’s Will (varied by DoV). H remarried after W died. H was the sole legal owner of the property.
In his Will, H provided a right of occupation in the property in favour of his second wife, who survives him. The right extends to any successive property that might be purchased.
The property is the main asset of H’s estate. The charge can only be redeemed on the sale of that property.
My question concerns the status of the life interest trust against a pre-existing nil rate band discretionary trust operating under the charge scheme.
Does the life interest trust fail in its entirety in these circumstances, or does the life tenant (the second wife) receive any right or value that persists (i.e. accounting for the fact the right to occupy can vest in an alternative property; albeit on the consent of the life tenant) and if so, to what extent?