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Competent to dispose
We act in the estate of R who died in July 2004. His uncle K had died in May 2002 and left R his house by will and this is the only asset in R's estate. The house was valued by an estate agent for K's probate purposes at £150,000 without any hope value. Planning permission was sought and granted and as a result the house and grounds were sold in February 2005 for £250,000.
The initial offer to purchase at that figure was received in July 2004, just after R's death.
Competent to dispose
We act in the estate of R who died in July 2004. His uncle K had died in May 2002 and left R his house by will and this is the only asset in R's estate. The house was valued by an estate agent for K's probate purposes at £150,000 without any hope value. Planning permission was sought and granted and as a result the house and grounds were sold in February 2005 for £250,000.
The initial offer to purchase at that figure was received in July 2004, just after R's death.
The executors of uncle K assented the house to the professional executors of R prior to the exchange of contracts. The sale then completed in the usual way, with the executors of K stating that there is no capital gains tax implication for the estate of K and the accountants for the professional executors of R advising that there is uplift of value of the house to the market value at the date of death of R, namely £250,000, hence there is no gain.
In reading TCGA 1992, s 62(4) and s 64(1) together, we are concerned that there might be a capital gains tax liability.
After R's death, the asset appears to have been acquired by his personal representatives as legatee and as such treated as if the acquisition by K's personal representatives (at £150,000) had been their acquisition of it. It has been suggested that market uplift applied when R died, such that the asset was worth £250,000 the moment he died and, on the assent, the base cost was at that higher figure. However, the wording of TCGA 1992, s 62(1) refers to 'assets of which a deceased person was competent to dispose' and we feel it is arguable that R's interest in relation to the house was merely that of devisee under the will at the date of his death; hence there appears a case that uplift in value does not apply.
Is there a capital gains tax issue anywhere?
Query T16,648 — Regal.
The problem which has been identified is a real one, but can work both ways: see Query T16,526, 'Interest in another estate', Taxation, 9 December 2004, page 275. Not only does TCGA 1992, s 62(4)(b) attribute the acquisition of a legatee to whom assets have been transferred back to the probate value of the personal representatives in question, but also the 'inclusive' definition of legatee in s 64(2) and its amplification in s 64(3) do not exclude personal representatives of an original legatee who died during the administration of the first estate. Furthermore, although not relevant in this instance, the taper relief provisions appear to operate on the same assumption: see TCGA 1992, s 2A(8)(a) and TCGA 1992, Sch A1 para 5(5).
The prospect of double taxation has been created by IHTA 1984, s 91(1), which (as one would expect) brings the open market value of the house into charge to inheritance tax on the occasion of the second death. In normal circumstances, TCGA 1992, s 274 would prevent capital gains tax being levied on an inconsistent basis, but its wording is defective in these circumstances because it only addresses value and does not postulate, in addition, an event of 'acquisition' where none occurs under the other provisions of that Act. — Cedovim.
I suppose this is another of those 'I am not a lawyer, but …' replies. I am a little confused by phrases such as 'after R's death, the asset appears to have been acquired by his personal representatives as legatee …' and 'R's interest in relation to the house was merely that of devisee under the will …'. When I look for a definition of 'personal representative' in Google, I get 'one who stands in the place of another'. This may seem pernickety, but I do not think that a personal representative is a legatee; he acts on behalf of the legatee. And to say that R was 'merely' the devisee surely underplays his importance. R was the person to whom the house was bequeathed.
It seems to me that on the death of uncle K, R as legatee became entitled to an interest in his estate — a 'chose in action'. As the house had not been vested in him at his death, it was presumably only literally that 'thing', i.e. the 'chose', that he was 'competent to dispose' of under TCGA 1992, s 62(1). I suppose that we then have a potential difference in the value of his estate for inheritance tax purposes, where the full value of the assets in which he had an interest in possession would be brought into account under IHTA 1984, s 91, and for capital gains tax purposes, where it would only be the value of the chose in action as above. That said, R appears to have been the only beneficiary and the house the only asset and, assuming that there were no hidden liabilities, presumably the value of the 'chose' would then have been very close to that of the house itself. — Brumus.
