Interest in another estate
Where the deceased (H) has an interest in the unadministered estate of his late wife (W), this interest has to be valued for probate of H's will as a chose in action. (At the date of his death, H is not entitled to any of the assets in W's estate, only to the right to have it duly administered.) On completion of the administration of W's estate, some five years after H's date of death, the assets (largely stocks and shares) in W's estate, due to H's estate, are worth considerably less than the probate value of the chose in action.
Interest in another estate
Where the deceased (H) has an interest in the unadministered estate of his late wife (W), this interest has to be valued for probate of H's will as a chose in action. (At the date of his death, H is not entitled to any of the assets in W's estate, only to the right to have it duly administered.) On completion of the administration of W's estate, some five years after H's date of death, the assets (largely stocks and shares) in W's estate, due to H's estate, are worth considerably less than the probate value of the chose in action.
If the executors of W's estate sell the stocks and shares, they realise a CGT loss which cannot be passed to the executors of H's estate. H's executors will receive cash, but will have suffered a real loss, because the eventual proceeds of their chose in action will have realised much less than its probate value. This loss will presumably then be available to reduce any chargeable gains on other assets in H's estate. Can readers please confirm this?
If the executors of W's estate assent stocks and shares to H's estate to satisfy H's interest, will H's estate be deemed, for CGT purposes, to have acquired these stocks and shares in exchange for the chose in action? If so, could H's estate then claim a CGT loss for the period from W's date of death to the date when H's executors realise those stocks and shares? This loss may be greater than the loss postulated in the previous paragraph, because of the diminution in value of the stocks and shares between the two dates of death.
I have a vague memory that the Revenue opined on the correct CGT treatment of the disposal of a chose in action and the acquisition of specific assets in satisfaction of it, but a search of memory, reference books and the Internet, have all failed to discover this. (The point does not seem to be covered by the CCAB press release of June 1967.)
Can readers confirm that the Revenue has made a statement on this point and, if so, can they advise where it can be found?
(Query T16,526) — Interested.
The situation as outlined by 'Interested' is not dealt with very satisfactorily at all by the inheritance tax and capital gains tax legislation, which produces an extremely odd result.
For IHT, the assets in the unadministered estate are looked through and brought into charge by IHTA 1984, s 91(1). Unfortunately, it does not follow from this that TCGA 1992, s 274 permits the residuary legatee's executors to claim a reacquisition of the individual assets at the date of the second death and their value at that time. A potential element of double taxation has, thereby, been built into the capital gains tax system.
TCGA 1992, s 62(1) continues to apply in relation to the first death. This enables the assenting of assets from the first set of executors to the second to be treated as a non-event under ss 62(4) and 64(2), without the second set of executors being involved in a disposal of a chose in action.
But these provisions also produce the strange result that any gains or losses on realisations by the second set of executors would be deemed to take place on the assumption that they had acquired the assets in question at both the date of the first death and their value at that date.
This scenario seems, moreover, to be consistent with TCGA 1992, s 2A(8)(b)(i). While the business asset taper situation has been obscured by the failure of the draftsman of TCGA 1992, Sch A1 para 5(4)-(5) to have envisaged circumstances such as these, it seems unlikely that there would be any question of that arising on the facts postulated in this case.
