Any gain on the disposal of assets by the personal representatives are, in their simplest form, calculated by reference to the sales proceeds less the value of the asset at the date of the death. Personal representatives are entitled to an annual exemption amount but only in the tax year of death and the following two tax years. Certain reliefs are also available.
Principal private residence relief (PPR) is a well-known relief under TCGA 1992 s223 which is available to individuals selling their home and exempts a gain for the period the individual lived in their home and the last 9 months of ownership. Thus, when an individual sells the home that they have always lived in there is no capital gains tax to pay.
When personal representatives sell a property, PPR can be claimed but certain conditions as detailed in TCGA 1992 s225A must be met.
The property, immediately before and immediately after the death of the deceased person needs to have been the only or main residence of one or more individuals. The individual (or individuals when looked at together) is entitled to 75% or more of the net proceeds of disposal or to an interest in possession in at least 75% of these proceeds. TCGA 1992 s225A(4) defines ‘net proceeds of disposal’ as the proceeds of the disposal of the asset realised by the personal representatives, less any incidental costs allowable as a deduction in accordance with section 38(1)(c) in computing the gain accruing to the personal representatives on that disposal (ignoring any liabilities which have to be met out of the proceeds including IHT). It should be noted that a claim to the relief must be made by the personal representatives, it is not automatic.
Where this exemption is not available the personal representatives may consider a transfer of the property to the beneficiaries, especially where the beneficiaries have unused annual exemption or some (or all) of the gain would fall within their basic rate band. Personal representatives would pay CGT on a property at 28% whereas an individuals gain on the same property would be charged at 18% where it falls within the basic rate band, the remainder then at 28%. This can be achieved by way of an ‘appropriation’ of the asset which transfers the beneficial (not legal) title.
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