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Legal News | 15.06.23

When is a Deed of Appropriation appropriate?

Depending on the state of the property market at the time, it is not uncommon for a personal representative to find that, at the point of sale, the deceased’s property has increased significantly in value since the initial date of death valuation. Unfortunately, this may result in Capital Gains Tax (CGT) becoming payable.

Estates have an annual CGT allowance of £6,000. Subject to certain permissible deductions, if a property sells for £6,000 more than the date of death valuation, there will be a CGT liability on the gain at a rate of 28%.

So, what steps could a personal representative consider taking to mitigate the amount of CGT that is payable?

The personal representative could consider ‘appropriating’ the property to one or more of the estate beneficiaries. This means that the equity in the property would essentially be transferred to the beneficiary(s) as part of their entitlement to the estate.

Once the property has been appropriated, any gain on the sale of the property would be treated as the beneficiary’s own for CGT purposes and they could therefore take advantage of their own annual CGT allowances. The benefits of this are:

  1. If there is more than one beneficiary, the gain would be spread across all of their annual allowances. For example, if there were two beneficiaries, then they could take advantage of a combined CGT allowance of £12,000 (presuming they have not made any other disposals that year), rather than the estate’s sole £6,000 CGT allowance; and
  2. If the beneficiaries are lower rate taxpayers, CGT on the property could be charged at the lower 18% rate, rather than the higher rate of 28%.

CGT can also apply to other assets owned by the deceased, including personal items and shares that are not held in an ISA.

If you have any questions regarding CGT allowances or how a Deed of Appropriation may benefit you, please do not hesitate to get in touch with your usual contact at Wansbroughs or by contacting us at wealth@wansbroughs.com.


Posted By Our Wills, Tax, Trusts & Probate Team