Capital Gains Tax when administering an estate

  • Posted

When acting as a Personal Representative (Executor and Administrator), you must be mindful of the potential Capital Gains Tax (CGT) issues which can arise when selling the deceased’s assets.

Much like an individual, a Personal Representative has an annual CGT allowance of £11,300. This allows the Personal Representative to make disposals of assets in a tax year up to that value without incurring any CGT.

Should disposals made by the Personal Representative in a tax year lead to there being ‘gains’ in excess of the allowance of £11,300 then there will be CGT payable from the estate.

The Personal Representative should be aware that the CGT allowance can only be applied for the Tax year in which the deceased passed away and the subsequent two tax years. After the end of that period the Personal Representative may no longer apply the annual exemption against any gains incurred in selling the deceased’s assets.

The rate of CGT applicable depends upon which asset the gain relates to, for example:

  • 28% on the sale of residential property; and
  • 20% on the disposal of other chargeable assets.

In calculating whether there is a gain on the disposal of the deceased’s assets, the starting point is to establish the ‘base’ value of the particular asset. The ‘base’ value will be what the asset was worth at the time the deceased passed away. Any gain is then calculated from the date of death value.

To establish whether there is a CGT liability the Personal Representative must take into account all sales in a tax year, as well any that triggered a ‘loss’. Then the overall outcome, if it results in there being a gain, should be considered.

As when an individual calculates any personal CGT liability, the Personal Representative can deduct the costs of selling an asset from the gain. This will include estate agent fees, solicitor’s fees and stockbroker’s commission when selling shares.

When disposing of assets the Personal Representative should always take professional advice on whether it is possible to mitigate the potential CGT liability by restructuring the sale arrangement. For example, it is possible, where assets are being disposed of which result in an overall gain and a CGT liability, to ‘appropriate’ the assets in question to the beneficiaries prior to the sale. That way, each beneficiary is personally liable for any CGT, however, they may all apply their individual annual allowance of £11,300 against the gain, which may result in cancelling the gain out altogether.

For specific advice on Capital Gains Tax matters and any other enquiries in respect of administering estates, please contact Bernard Flanagan in our Private Client team.

Please note the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.