ISA/CGT question

Base cost of ISA investments following death

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My client's aunt died in March 2020 and she left him her estate, which includes a stockbroker's ISA.

The value has increased significantly and he is aware that the executors can sell the shares in the ISA during administration (up to 3 years) and the gain will be tax free.

His question is if he just gets the executors to transfer the shares into his own name whether his base cost is probate value or the value on the date of transfer. I am fairly sure it is probate value but I cannot find a definitive answer to this and should be grateful to hear the views of others.

 

Replies (7)

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By 356B
15th Jul 2021 19:53

Base cost will be the value at probate. ISA dies with the owner.

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Replying to 356B:
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By sirp2000
16th Jul 2021 08:47

Thanks 356B, although it is not quite right to say that the ISA dies with the owner.

From the HMRC website:

"If you die
Your ISA will end when either:

your executor closes it
the administration of your estate is completed
Otherwise, your ISA provider will close your ISA 3 years and 1 day after you die.

There will be no Income Tax or Capital Gains Tax to pay up to that date, but ISA investments will form part of your estate for Inheritance Tax purposes."

It just seems an anomaly that a sale making a large gain (with probate value as base cost) the day before administration ends is tax free but a sale the day after could lead to a large CGT bill.

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Replying to sirp2000:
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By Hugo Fair
09th Aug 2021 18:11

Just to be clear, "the ISA dies with the owner" is true ... albeit subject to the 3 points you've listed.
What this means is that AFAIK the ISA cannot be transferred to your client ... so the 'tax-free status' is lost at one of the 3 points in time BEFORE your client gets the value (whether as unwrapped shares or cash or whatever, but not as an ISA).

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Replying to sirp2000:
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By More unearned luck
09th Aug 2021 18:25

Qualification periods and deadlines abound in tax. For example it is no more an anomaly that the taxpayer who sells his shares in his personal company a day before or a day after he has held them for two years. If the first case no BADR in the second BADR.

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Replying to More unearned luck:
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By sirp2000
09th Aug 2021 19:25

Thanks Hugo Fair and More unearned luck.

I am aware that the ISA status is lost as soon as the transfer is made. My question was about the base cost for CGT when my client eventually sells the shares.

I had thought that this would be probate value (an anomaly!) but have now discovered the legislation stating that the transfer value is used. No anomaly!

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Replying to sirp2000:
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By Hugo Fair
09th Aug 2021 20:19

Yeah, sorry to have gone off on a tangent (I was just a tad concerned that the 'status' concept was being lost in the conversation about the ISA dying with its owner).
Anyway it's nice to have an example where the answer to your original question is both clear and logical - transfer value being what I would've expected!

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By sirp2000
09th Aug 2021 14:15

I can now answer my own question.

If the shares are transferred from the ISA to the legatee by the executors, the legatee's base cost is the value at the date of transfer NOT the probate value.

SI1998/1870 34A

[F1Capital gains tax–administration-period investment
34A. For the purposes of capital gains tax—

(a)on the occasion when title to an administration-period investment is transferred from the personal representatives to a legatee, the legatee is to be treated as having acquired the investment on the date of transfer and for a consideration equal to its market value on such date; and
(b)on the occasion when title to an investment is transferred from the personal representatives to a legatee after the end of the period in respect of which it was an administration-period investment, there shall be deemed to be a disposal and reacquisition by the personal representatives of that investment at the end of that period and for a consideration equal to its market value at such time and the legatee is to be treated as having acquired the investment for such consideration on the date of transfer.]

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