HMRC clarifies legatee sales, expenses and trustee status

A legatee who pays the estate's liabilities to secure a particular asset is buying itGOV, not receiving a tax-free legatee transferGOV. Where an estate lacks liquid assets and a legatee funds the personal representatives in return for the transfer of an asset, the arrangement is a sale of the property following Passant v Jackson (59TC230)GOV, and it should not be accepted that there was merely a transfer to a legatee under cover of TCGA92/S64 (4)GOV. The no-gain treatment in section 62(4) — no chargeable gain accrues to the personal representatives and the legatee inherits their acquisition — does not shelter a bargain of this kindGOV.

Legatees computing gains on later disposals get a deduction for transfer expenses under TCGA92/S64 (1)GOV. Where a person disposes of an asset, or a right or interest in one, that he acquired as legatee, the computation allows both his own section 38(2) incidental expenditure on the transfer from the personal representativeGOV and any similar expenditure the personal representatives incurred on that transferGOV. That sits beside the existing rule that the personal representatives' costs of establishing title are not deductibleGOV, while the transfer costs themselves areGOV.

A legatee who gives away his interest before assets vest makes a variation of the devolution of the estateGOV. If all other necessary conditions are satisfied, an election under TCGA92/S62 (7) makes the gift retrospective to the date of death for Capital Gains Tax purposesGOV; the election needs the written statement of intent section 62(7) requiresLegislation, and a variation for consideration in money or money's worth is excluded by section 62(8)Legislation. Without a valid election, while assets remain vested in the personal representatives, the CG32000+ treatment applies insteadGOV.

The revised pages also settle who counts as a legatee. Trustees of a will or intestacy trust that comes into existence are legatees like any absolute taker, confirmed by TCGA92/S64 (2)GOV: the personal representatives face no Capital Gains Tax on disposals after vestingGOV and the trustees acquire at market valueGOV. But a remainderman receiving assets when the will trust ends takes as trust beneficiary, not as legateeGOV, so section 62(4) gives no exemption and the trustees face a charge under section 71(1) unless another exemption appliesGOV. Where the life tenant dies during administration so no trust over specific assets ever comes into existence, the remainderman takes as legatee directlyGOV, with no chargeGOV and acquisition at date-of-death market valueGOV. A recipient by donatio mortis causa is treated as a legatee for Capital Gains Tax purposes except those of section 62, so the section 64(1) transfer-expense deduction extends to such a recipientGOV.

The legal basis is sections 62 and 64 of the Taxation of Chargeable Gains Act 1992 and the Capital Gains Manual legatee pages CG31100, CG31140, CG31180 and CG31200.