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Where Taxpayers and Advisers Meet

How to Vest Inherited Property in Beneficiares?

Keo
Posts:6
Joined:Fri Jul 28, 2017 9:00 am
How to Vest Inherited Property in Beneficiares?

Postby Keo » Fri Jul 28, 2017 9:45 am

I am an executor of an estate in Northern Ireland. My self and 3 siblings have inherited a 25% residual share in our late mother's estate, dod was spring 2016.

We are sale agreed on a property which mum owned with her ex husband and a gain is arising from the probate value, due to fact of a joint property discount allowed for IHT computation (they were tenants in common). The base value of the half share of the property we inherited is approx £200k for IHT/CGT purposes. The prospective sale value of the share is £235k. All four beneficiaries have unused cgt allowances, and 3 of the beneficiaries are lower rate tax payers. I therefore think it is wise to mitigate the CGT by vesting the property in the 4 beneficiaries, rather than using executor's allowance, but the question is how to do it?

I have come across the following but any advice which provides more clarity would be appreciated. I would rather effect a document than relying on an inference that residue has been ascertained

Assent at Land Registry - In NI we complete form LR17. The property is on unregistered land and therefore the time it will take to do this may interfere with the conveyance, as first registration may be required. Purchaser wants to complete in less than 2 months. So this doesn't seem like an option

Deed of Appropriation - I'm not clear how this differs from a deed of equitable assent, they seem to be used interchangeably. Is it correct that appropriation to a beneficiary occurs at present market value? In what circumstances can it be backdated to dod value? Is an appropriation only in satisfaction of a legacy or can it be in satisfaction of the residue?

Deed of Assent of Equitable Interest - This is my preference but I cannot find a draft of one anywhere.

Residue Ascertained - I have received a limited clearance letter from HMRC, but due to the fact that there is a small overseas estate some property tax liabilities in that jurisdiction are being uncovered which we did not know about when completing the IHT400. I have enough liquid funds to cover these but I may have to re-open the IHT account to have these brought into the calculation.


Thank you in Advance

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: How to Vest Inherited Property in Beneficiares?

Postby maths » Fri Jul 28, 2017 8:21 pm

Property can only be vested in a beneficiary by the PRs if the latter assent (whether informally or otherwise). You and brothers seem to have inherited an interest in the residue of your mother's estate (comprising real estate) in respect of which the PRs must assent in order that any beneficial interest in the property inherited passes from the PRs to you/brothers as beneficiaries prior to sale to a third party (necessary for CGT purposes).

The beneficiaries will as a consequence inherit at probate value (for CGT) if IHT was payable on the estate as the property's value will then have been "ascertained".

Appropriation is not in point. Appropriation is where a beneficiary inherits a beneficial interest under a will and the PRs "appropriate" assets in satisfaction of that inheritance. For example, Tom is entitled to say a 25% interest in residue (worth £50,000) and the PRs appropriate shares in ABC Plc to the value of £50,000.
Assets are appropriated at market value as at date of appropriation unless will provides otherwise (ie value at date of death).Consent may be required.

The above applies to English law.

Keo
Posts:6
Joined:Fri Jul 28, 2017 9:00 am

Re: How to Vest Inherited Property in Beneficiares?

Postby Keo » Mon Jul 31, 2017 4:26 pm

Thank you Maths
I have instructed my solictor to draft a memorandum vesting beneficial interest in the property in the beneficiaries, however I have come across a comment elsewhere that HMRC no longer accept the bare trustee position. Does this sound plausible?

HMRC have not accepted for some decades that personal representatives may carry out disposals as bare trustees for the relevant legatees.

https://www.taxation.co.uk/articles/200 ... l-conflict

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: How to Vest Inherited Property in Beneficiares?

Postby maths » Mon Jul 31, 2017 6:29 pm

The executors may vest the beneficial interest of an asset held by them in a beneficiary. Henceforth, the executors then hold the asset (ie legal title) as bare trustees for the beneficiary. This is quite common practice.

Keo
Posts:6
Joined:Fri Jul 28, 2017 9:00 am

Re: How to Vest Inherited Property in Beneficiares?

Postby Keo » Mon Jul 31, 2017 7:42 pm

Maths, it certainly doesn't seem untoward but as my solicitor is not a cgt specialist I am steering him, ans thus wondering if I should assent the legal title, although time may be against us for registrtion etc. My question is if any of the beneficiaries are challenged when we make our returns can we rely on an assent of the equitable interest to satisfy HMRC ? I know they are unlikely to ask but we never know.

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: How to Vest Inherited Property in Beneficiares?

Postby maths » Mon Jul 31, 2017 9:50 pm

For CGT purposes it is the beneficial interest (not legal title) that matters.

A transfer of the beneficial interest to the purchaser triggers the CGT charge. It is thus important that the executors have assented the beneficial interests to the beneficiaries prior to the disposal to the purchaser.

The legal title can then be registered (in England Form AS1 would be used).

Keo
Posts:6
Joined:Fri Jul 28, 2017 9:00 am

Re: How to Vest Inherited Property in Beneficiares?

Postby Keo » Mon Jul 31, 2017 10:15 pm

Is the equitable assent sufficient without anything else? We will not have time (so I'm told) to vest the legal title in the beneficiaries or the PR as trustee.

Keo
Posts:6
Joined:Fri Jul 28, 2017 9:00 am

Re: How to Vest Inherited Property in Beneficiares?

Postby Keo » Mon Jul 31, 2017 11:33 pm

The legal title of the property is also still in the name of deceased not the PR, if this makes any difference to the executor vs trustee question.

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: How to Vest Inherited Property in Beneficiares?

Postby maths » Tue Aug 01, 2017 12:03 am

The executors simply state that they have assented/vested the beneficial interest in the property in favour of beneficiaries X, Y and Z and that from the date of the assent they (ie the PRs) declare that they henceforth hold the property as bare trustees for X, Y and Z.The conversion from executor to bare trustee happens automatically.

The PRs can then sell the property at the request of X, Y and Z and any CGT charge arises on each of X, Y and Z (not the PRs).

The legal title can I believe then be transferred directly to the purchaser.

Whilst your solicitor may not be au fait with CGT principles the other matters I would have assumed are well within his role as solicitor.

Keo
Posts:6
Joined:Fri Jul 28, 2017 9:00 am

Re: How to Vest Inherited Property in Beneficiares?

Postby Keo » Tue Aug 01, 2017 9:22 am

Thank you Maths for further clarification. My solicitor is an experienced conveyancer, but I don't believe he has direct experience of this particular quandry and HMRC's perspective, tending generally to recommend an assent of the legal ownership.


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