capital gains tax and deed of variation

[sazzy]

My husband was a beneficiary of his father's Will in which he was left a 1/3rd share of his father's house together with his brother and sister. He completed a Deed of Variation in favour of our three children within 2 years of the death. The house is now to be sold and there is a capital gain of about £160000, Their share of this gain will be £17000 each.

My husband is an executor with his brother and sister. We have asked the solicitor to Appropriate the house into the beneficiaries names (brother, sister and our three children) before exchange of contracts so that they can each use their own capital gains allowance. However, our solicitor is insisting that it has to be sold in my husband name and then distributed to the beneficiaries as per the Deed of Variation and she says that she does not believe that they can use their own capital gains allowance my husband has to use his. We are very concerned as this is not how we have read it and my husband does not want the money going through his estate.

We also asked that as beneficiaries could our children transfer (gift) part of the property to their spouses before exchange so that they can each use their own CGAllowances she does not seem to have done this before and told us to seek advice from the accountant after the sale. Some years ago I did this myself by signing a Declaration of Trust after being advised by my solicitor at the time when selling my mothers house which I had inherited.

I would very much appreciate advice on this matter.

[AGoodman]

If the DoV contains a reference to s.62 TCGA then your husband's annual CGT allowance should have nothing to do with it. The section reads the variation back to the will so the grandchildren are treated as the original legatees for capital gains tax purposes.

If the grandchildren are all absolutely entitled under the DoV then you should be able to appropriate etc. This should be fairly basic stuff for a solicitor doing probate work.

Whose name is the property registered in now? The deceased or the executors?

If the DoV does not refer to s.62 then you may be stuffed as the reference is a condition of the relief. I would expect to see it there.

[maths]

Agree with AGoodman.

Once the property has been assented to the beneficiaries including the three children they each hold a beneficial interest in the property. Any of the beneficiaries may transfer,say, 50% to their spouses thus increasing the annual exempt amounts available on any sale.

Ideally the above should all be done prior to the commencement of any sales discussions.

[TaxAdviser2018]

To add to the replies, presumably the administration of the estate of your late father-in-law has been concluded and all assets have been distributed. If the administration of the estate has not been concluded and the property has not yet been distributed to the beneficiaries, you should confirm whether the gain will be taxed on the estate which will probably apply in these circumstances.

On the basis that the estate has been concluded and assets have been distributed in accordance with your father-in-law's will and subsequent Deed of Variation, your children are the beneficial owners of an interest in the property. On the basis that the property was conveyed to the now legal owners (which could include your husband and his siblings) then a solicitor should prepare a declaration of trust to evidence under what terms the property is held for the beneficial owners including the respective proportions of the beneficial ownership. For completeness there should be a restriction on title registered at Land Registry to ensure that no one legal owner can sell the property without due consideration to all of the beneficial owners.

Your children can transfer a proportion of their holding to their respective spouses (and even any children they may have) in order to utilise their respective annual capital gains tax (CGT) exemption. Transfers to spouse are made at nil gain nil loss and therefore your children's spouse is deemed to have acquired the share in the property at the donor's base cost (which in this case should be the probate value). Any transfers to a non-spouse (e.g. grandchildren) will be deemed to be made at open market value and therefore the amount to be gifted could be limited to the annual CGT exemption to avoid your children being liable to CGT at the point of making the gift. Any gift of a share in the property can be evidenced by way of a deed of gift/letter of love and affection. These aspects should be completed prior to a sale (i.e. before exchange of contracts) and ideally before the property is marketed for sale.