Unadministered nrb discretionary trust and cgt on family home

Good Morning,


H died in 2012 leaving Will incorporating the usual Nil Rate Band Discretionary Trust with residue to spouse.

His estate at death consisted of his half share of the matrimonial home owned with his surviving spouse worth £150,00 and £50,000 cash. The whole estate should therefore have fallen into the NRB Trust.

The family dealt with the Probate but evidently ignored the Will and no steps were taken to constitute the Trust. This seems to be a common occurrence. The surviving spouse received the cash and the
property remained in the names of the deceased and surviving spouse as tenants in common. The NRB legacy is currently unsatisfied but is still due.

The surviving spouse is now selling the property for £400,000 valuing the deceased’s half share at £200,000, an increase of £50,000. The NRB Trust is now to be constituted.

The following questions arise:-

  1.   Is the deceased’s half share of the property treated for CGT purposes as still being part of an unadministered estate?
  2.   If so, will CGT be payable on the gain by the PR’s on sale or, alternatively, if the half share is now appropriated to the Trust prior to any sale?
  3.   Would it assist if the Trustees appointed out the half share to the surviving spouse on a Life Interest prior to sale?
  4.   Since the surviving spouse has occupied the property throughout is this a situation where PPR can apply to the whole property, or will HMRC expect CGT to be payable on the unadministered half share of the property formerly belonging to the deceased.

Any comments would be welcome.

Peter Jackson
Hughes Paddison

  1. Yes, I think the deceased’s half share is still unadministered with the legacy to the NRBT remaining unpaid (with statutory interest accruing). With the half share of the property still in the estate, a sale by the PRs makes no sense (no PPR relief and no AE).
  2. It would be better to satisfy the outstanding legacy and appropriate the deceased’s share now. The appropriation gives the best chance of claiming PPR under section 225 as per Sansom v Peay, 'where, during the period of ownership of the trustee, the dwelling-house ….has been the only or main residence of a person entitled to occupy it under the terms of the settlement’. The trustees need to have the power to allow occupation under the terms of the settlement and, in theory, they need to exercise this power.
  3. Section 12 of ToLATA governs ‘right to occupy’ and it is clear that a Life Interest would give such a right. As the two year window from death has passed, it would be belt and braces to give the surviving spouse a Life Interest (although there is an argument to suggest you can satisfy section 12 without a formal LI allowing you to claim PPR in the first 2 years from death while not creating an IPDI – not particularly relevant here.
  4. There is no clear answer as to how HMRC will view the CGT position. However, in my view the best bet would be to constitute the trust, grant a LI to the survivor, sell the property and claim PPR relief on the whole gain for the entire period of occupation but manage the clients’ expectations.

Camilla Bishop
DMH Stallard

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I refer to point 2 of Camilla Bishop’s post.

My understanding is that it is only the trustees of land who have power to grant occupancy rights over the property.

In the case in point the trustees of the testamentary trust are merely a beneficiary of the trust of land.

However, the trustee(s) of the land could grant the trustees of the testamentary trust the right to occupy, which those trustees may then exercise through a person authorised by them to occupy the property.

Paul Saunders

If the 50% interest of the deceased is part of an unadministered estate at the date of sale then the sale of the 50% is effected by the PRs. In which case, assuming an increase in value between date of death and date of sale the resultant gain will fall subject to CGT.

If the 50% is appropriated to the DT prior to sale then the sale will be effected by the trustees in which case any gain will fall subject to CGT although private residence relief will be in point if, under the terms of the trust, the survivor is entitled to occupy the property.

Presumably an appointment by the trustees of an interest in possession (iip) to the surviving spouse would give rise to a non-qualifying iip but would then mean under the terms of the trust the survivor is entitled to occupy the property and hence private residence relief would apply.

The fact that the surviving spouse has occupied the property throughout means on sale any gain attributable to her 50% is eligible for private residence relief but it does not follow that such relief will apply to the sale of the other 50%.

Malcolm Finney