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Where Taxpayers and Advisers Meet

SDLT on property inherited by deed of variation

AK2021
Posts:6
Joined:Fri Dec 31, 2021 2:52 pm
SDLT on property inherited by deed of variation

Postby AK2021 » Sat Feb 12, 2022 5:29 pm

I am acting as executor in my mothers estate.
I have a query which is a bit SDLT/IHT/CGT but posted here first.
There will be CGT to pay on the uplift of the house sale.
To mitigate this I intend to appropriate 19% to each of the four residual beneficiaries.
Two beneficiaries have a deed of variation which splits their entitlement with their spouse 50/50. (=9.5% each)
There was a debt secured on the house at date of death, currently c£220,000.

I understand that the original beneficiaries will have no SDLT to pay, but do the ones inheriting by deed of variation?
Does the DOV count as a gift for SDLT purposes?
The DOVs were signed before the two year anniversary of death but the house sale will complete after, does this affect anything?
Can I appropriate the assets whilst retaining the debt in the estate - so no consideration?
Is 9.5% of £220K considered below any SDLT threshold for each spouse?

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

Re: SDLT on property inherited by deed of variation

Postby maths » Sun Feb 13, 2022 4:50 pm

It should be possible to appropriate 19% of the property to four residuary beneficiaries each subject to any attaching mortgage. On a future sale of the property, post appropriation, each vendor should be in a position to use his annual exemption (if not otherwise used) for CGT. It is important that asap and before any "exchange" re any sale that the beneficiaries under the will do possess beneficial interests at that time.

Presumably, wrt the balancing 24% interest, this is a sale by the PRs qua PRs.

No SDLT arises on such appropriations.

However, the Deeds of Variation in principle give rise to SDLT charges where there is assumption of any attaching debt (presumably if no such assumption occurs on the part of the recipients under the DoV then no SDLT on their part).

[See FA 2003 Sch 3 paras 3A and 4]

I'm not sure whether the SDLT "linked transactions" are applicable to the above.

AK2021
Posts:6
Joined:Fri Dec 31, 2021 2:52 pm

Re: SDLT on property inherited by deed of variation

Postby AK2021 » Sun Feb 13, 2022 7:35 pm

Thanks for the reply
I'm a only a little clearer

So I'm happy that the four original beneficiaries are covered by 3A(1)and(2) - as its inherited property with debt secured immediately after the death. no SDLT to pay.

Can I ask to clarify your other points
It is important that asap and before any "exchange" re any sale that the beneficiaries under the will do possess beneficial interests at that time
What would "possess beneficial interests" entail?
Is this that the deed of appropriation is in place?
sale by the PRs qua PRs
The house is being sold, exchange imminent, by the executors, the residual beneficiaries are the same four people.
The estate will retain 24% to utilise its own CGT allowance, and use the funds to pay debts (including the secured debt).
presumably if no such assumption occurs on the part of the recipients under the DoV then no SDLT on their part
What wording in the DoV or DoA would ensure "no such assumption" of debt.
Would it be better to have avoided a DoV and have used a deed of assignment between spouses, explicitly excluding the assumption of debt?

I can reduce the debt with the funds in the estate, if I reduced the debt to below £200,000 wouldn't that mean each individual beneficiary's consideration was below the £40,000 threshold for additional SDLT and so pay nothing regardless.
Or is this where you are mulling "linked transactions"?
If so would each of the spouses pay SDLT on £220,000?

I don't really understand Sch 3 para 4 relating to a DoV
Is 4(2)(a) "transaction is carried out within the period of two years after a person’s death" the DoV or the actual sale?
Does this transaction fail 4(2)(b) because of assumption of debt, - how do I exclude assumption of debt?
If I cant what would be the SDLT payable?

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

Re: SDLT on property inherited by deed of variation

Postby maths » Sun Feb 13, 2022 9:10 pm

Where executors and residuary beneficiaries are the same persons there is a real danger of the parties being unaware at any point in time in which capacity are they are operating.

You indicate "exchange" is imminent re the sale. Presumably all discussions and paperwork has been undertaken by the executor(s). If so in which capacity have they been acting?
There is a risk that if the PRs execute Deeds of Appropriation just prior to exchange that the beneficiaries will be regarded as nominees and not beneficial owners.

Has the period of administration ended?

On "exchange" who is/are shown as the contracting parties and in what capacity?

Given the complexity of CGT, SDLT, DoA and DoV professional advice should be taken if CGT and SDLT mitigation is to succeed.


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