Hello wise awebbers!
New client. Father died 2020. House sold by Estate June 2021. CGT is payable by Estate. The solicitor has distributed all funds to the beneficiaries before paying the CGT. Son and Daughter are beneficiaries and executors but have strained relationship.
Daughter has contatcted me to assist with the CGT reporting. The issue of paying the CGT has cropped up. Understandably she only wants to pay her relevant share of the CGT and have her brother pay his. But she has no contact with her brother.
Does anyone know what HMRC's standpoint on this would be? Who would they consider liable for the CGT? And how would they go about recovering it?
Many thanks
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Who would they consider liable for the CGT? And how would they go about recovering it?
Why would the executor not remain liable for the tax? Just because he/she “forgot” to pay doesn’t mean it’s someone else’s problem.
Presumably the distributions have been excessive and any excess should be repaid. Whether that’s the strict legal position, is a legal question.
EDIT: Are all 3 executors? Presumably they have failed to carry out their duties by not paying the estate’s liabilities and so would be liable?? Joint and several?? Who knows? A solicitor, presumably.
This seems to reflect my observations that some solicitors have little knowledge or understanding of tax.
This CGT reporting is really showing this to be the case!
Many solicitors aren't even mentioning it!
This CGT reporting is really showing this to be the case!
Many solicitors aren't even mentioning it!
No direct experience but if that’s the case, it must be gross incompetence. Even if they don’t know how to calculate liabilities, they should be able to spot when they are likely to arise and then take tax advice.
Solicitors will have undertaken a tax module in their exams that covers CGT. They might not have undergone any CPD on it since though, particularly if this is not their usual area of work.
Do CG30621 and CG30640 help?
(The cross-reference in the former is wrong - it should be TCGA 1992 s65(1))
Thanks that's helpful. And worrying, as it seems one PR could be liable for the lot, if I'm reading it correctly.
Is there CGT due? Any gain on the sale of deceased persons' assets is usually modest at best as the cost is the probate value and executors have the choice of using the sale proceeds as the PV in the case of property.
Are you sure of your facts? You say the house was sold by the estate. Did the executors sell qua executors or qua bare trustee for the legatees?
In the first case, unless the sale has been delayed by several years, one AEA is available and a single return will be required if there is tax due.
In the second case (ie where there has been an assent) there will probably be one AEA per legatee making it more likely that no tax (and hence no returns) will be due. Otherwise there will be one return due per legatee.
I should add the second case also applies if the admin period ended before contracts were exchanged.
HMRC say " You [ie HMRC officers] should normally accept that the administration ended on the date the personal representatives tell you it did.", so give a date earlier than the date of exchange, if you want more than one AEA and there was no assent.
There is also the possibility that some of the tax will be at 18%.
The solicitor dealing with the sale advised "The property has not been transferred out of the Estate (this would be an Assent in to the beneficiaries names), you and your brother are Executors of the Estate which is where the property currently sits"
There was an uplift in value of £50k between PV and sale proceeds.
Has the PV been 'ascertained' (a word with a very precise meaning)?
If yes:
As I said in my postscript HMRC will accept what the executors say. The fact that the money has been paid out of the estate is prima facie evidence that any statement to the effect that the admin period has ended is true and in all likelihood ended before contract.
See TESM7360 and CG30700 for more on HMRC's view on this topic.
It would be helpful if the executors agreed the date.
That's helpful and interesting. What would be an indicator of the adminstration period ending? I understand the brother dealt with probate and has destroyed all documents relating to it. The property had been on the market for some time so it could be argued that the residue of the estate was identified much earlier than when the property was sold.
The conveyancing solictor made the comment about the estate selling the property back in March 2021.
How can a house that has been sold and proceeds distributed still sit in the estate? When did the solicitor make his or her comment?
1. How do you know "CGT is payable by Estate"? Has HMRC written to say so (and if so to whom)? Or is this just someone's opinion?
2. Was the solicitor the sole Executor? Or were either (or both) of the beneficiaries also co-executors?
3. Why is daughter (who "has no contact with her brother") trying to sort this herself - with or without your help - instead of plonking problem on desk of the Executor?
Thanks ... I must learn to absorb properly what I've read!
However, now that I've done so I've realised that "the solicitor" has nothing to do with the Estate (nor indeed is an Executor) ... and appears to have only been the conveyancer.
In which case why would anyone expect her/him to have sorted out CGT? Raised it as a possibility perhaps, but payment (of this or any other taxes including IHT) are highly unlikely to have been part of their remit - and remain a liability of the Estate.
So the core statement that "solicitor has distributed all funds to the beneficiaries before paying the CGT" is highly misleading ... in that it permits an inference that CGT should have been paid and deducted prior to distribution. But why should it?
If, as an executor, I request a garage to remove the deceased's car and then sell it ... then those are two transactions. If the guy on the forecourt gives me £500 (for the car) and I split that with my co-executor before the bill arrives (for towing the car to the garage) from the towtruck owner ... then I can't blame the garage for not deducting the tow charges (from the next-door business) before I decided to distribute the gross (rather than net) proceeds!
As I read it, talk of 'distribution' is not (as I originally thought) distribution of proceeds *from* the Estate ... but rather distribution *to* the Estate.
If that's correct, who is drawing up the Estate Accounts (and dealing with HMRC and getting sign-off from beneficiaries, etc)?
You might be right about the 'to' and not 'from', but that doesn't matter. What is key (given that there was no actual assent) is there the inferred assent the master of the rolls referred to in CIR v Sir Aubrey Smith*?
But I doubt your conclusion because if the sol is only acting in the sale then who has progressed the estate and the sale to this stage given that the executors are estranged?
*Not to be confused with the test cricketer and Hollywood actor Sir C Aubrey Smith (you may recall him playing the Chief Constable in Hitchcock's 1940 masterpiece, Rebecca.)
"then who has progressed the estate and the sale to this stage given that the executors are estranged?"
This is, more succinctly, exactly the question I was trying to raise ... when I asked "who is drawing up the Estate Accounts (and dealing with HMRC and getting sign-off from beneficiaries, etc)?"
Now that OP has added "the brother dealt with probate and has destroyed all documents relating to it", it sounds increasingly as if the solicitor was only hired for conveyancing ... AND that the situation is a true nightmare (way beyond my levels of experience).
I am in little doubt that HMRC will seek redress from the Estate - and assume that in practical terms that means the two executors. But even if true, whether that would be jointly and severally I have no idea.
Assent of land and property has to be in writing. You don't have that. You've been dealt a duff hand.
Further, two Executors not talking to each other may not have ascertained the estate. Or maybe there was very little to ascertain and they have. It's ultimately a matter of fact. (If they have, then you might expect there to be additional documents, eg estate accounts, that show they have. Instead you say brother has been reducing the number of documents... though surely duplicates of some of them exist... advice: define the scope of your engagement here very carefully.)
Sorry, I've wandered down a tangent. I was saying that what's done is done, but what isn't done isn't done - and the tax has to fall where it might. I'm surprised to see MUL apparently suggesting you might rewrite history if the actual history doesn't give the result you might want. In what way would that not be fraudulent? And this from someone who is outraged - outraged - that HMRC sets out 'guidance' on gift aid for charities on donated goods.
Dammit another tangent. This heat is making my thinking go wobbly. Where was I?
Oh yes, FWIW I had a similar scenario recently. (Which maybe helps explain MUL's point a bit better than I do in my caricature above.) An estate was a couple of bank accounts and a property. Sold without a prior written assent. Came to us to work out the tax. (I should say that, although the valuable assets were few, the existence of minor grandchildren made the devolution of the estate per the will more intricate. You imply that's not a factor in your case.)
Now, if you rummage around the manuals you'll find places where HMRC argues ascertainment happens very early and other places where it appears to argue the reverse.
Of course, we hooked onto the former (as MUL is urging you to do) and the executors agreed we were right. However, HMRC went after tax on the estate and were ultimately successful.
Thanks TD for your voice of reason. I sometimes think I am going mad with the suggestions raised on here.
There are two morals to TD’s tale.
The first is that every case depends upon its facts; Just because TD’s client’s facts didn’t pass muster it doesn’t follow that will be the case in your clients’ case. The date the admin period comes to an end is highly fact specific possibly requiring a multi factorial analysis. This is why HMRC don’t usually want to embark on such an exercise and instruct officer to normally accept what the taxpayer avers. With the SA system it is the taxpayer who makes the assessment, and it is her that must decide what the facts are and how the law applies to those facts. This means that in contentious cases the taxpayer must give herself the benefit of the doubt. If it’s tenable that the admin period came to an end before contract, then you should give the client the choice of who makes the return(s). If there is a strong case, then you should be advising that the legatees make returns.
The returns don’t include a white space, so if you are taking a contentious position you can add a note to the CGT comp you upload. SP1/06 only covers contentious views of the law and valuations, but it seems reasonable to treat contentious facts in the same way. The dividing line between law and fact isn't always clear.
You and your client(s) need to make up your minds quickly as the clock is ticking.
The second moral is, of course, that clients should seek advice before rather than after the transaction.
Indeed. There were factors I haven't, and won't, mention. The moral I was hoping people would draw was that HMRC can and does take an interest. (Why? Because there is tax at stake!) Just picking a date at random (but before the sale), as you seemed to be suggesting, simply won't... pass muster (good expression btw - Aweb still teaching me things).
One thing (of many) that you probably don't want happening is the brother (who sounds like the first-named executor and maybe has primary reporting responsibility) declares a gain on the estate (which, in his view, was not ascertained prior to sale) while sister makes a return on her own account. Still, I guess one of them would be right! (Agreed we can't tell which.)
Oh the mess people can make of even simple things when they stop talking. (For me, Mr MUL, that is the real [first] moral. [Your second is of course agreed.])