Legatees’ capital gains tax position

Produced by Tolley

The following Trusts and Inheritance Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Legatees’ capital gains tax position
  • Transfers to legatees
  • Capital gains tax on later disposals by legatees
  • CGT planning points on payments to legatees
  • CGT annual exemption
  • Rate of tax
  • Capital losses
  • Loss on sale of land or qualifying investments
  • Appreciating and depreciating assets
  • Charity beneficiaries
  • More...

This guidance note examines the capital gains tax consequences for beneficiaries when they receive distributions of capital from deceased estates. The note should be read in conjunction with the following guidance notes:

  1. Deceased’s capital gains tax position

  2. Capital gains tax during administration

Transfers to legatees

The legislation on this matter refers to beneficiaries of deceased estates as ‘legatees.’ For capital gains tax purposes, a ‘legatee’ is any person who takes an asset under a testamentary disposition, or on total or partial intestacy. The asset may be a specific gift under the Will or it may represent value to which the legatee is entitled. The same basic rule applies whether the ‘legatee’ takes the asset beneficially, ie personally or as trustee for someone else. It includes a person taking a donatio mortis causa, which is a gift the deceased made because he was expecting to die.

The basic rule is that if personal representatives (PRs) transfer an asset to a legatee under the terms of the Will or intestacy, no chargeable gain (or loss) accrues to the PRs. The PRs’ acquisition value becomes the legatee’s acquisition value for the purpose of calculating any gains made by the legatee on a later disposal. So unless the asset transferred was acquired by the PRs during the course of the administration, the legatee’s acquisition value will be the date of death value.

The position is the same if assets are appropriated to a legatee in or towards satisfaction of a pecuniary legacy or share of residue. In this context, ‘appropriate’ means that the PRs have transferred or allocated assets to beneficiaries, either at the PRs’ discretion or by agreement, in order to fulfil a cash entitlement.

The term ‘appropriate’ is also used where the PRs allocate assets to beneficiaries without legally transferring them. This is done by means of a formal declaration stating that the assets are held on behalf of the beneficiaries as bare trustees. In this context, it

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