Taxing the death estate

With HMRC tax take increasing (receipts from April to October 2023 are 23.9 billion higher than the same period last year) we have set out the capital gains tax (CGT) implications of the deceased estate and outlining one of the ways to reduce tax burden.

On death, the personal representatives (PRs)/executors receive the assets of the deceased estate at the probate value. The base cost of the assets is therefore uplifted from the deceased’s original base cost for CGT purposes.

It is often necessary for the PRs/executors to sell assets for various reasons. Where the assets in question have increased in value since the date of death, this often leads to capital gain which is chargeable to tax in the same way it would be charged on an individual. 

PRs/executors do have the annual exempt amount (AEA) available to them, however, it is available for the tax year of death and the following two years only. In light of the recent reduction of the AEA from £12,300 to £6,000 and will reduce again to £3,000 from 5 April 2024, forward planning is perhaps needed more than ever for PRs/executors.

It is possible to appropriate assets to beneficiaries prior to a sale, which is not a disposal for CGT purposes. The beneficiaries are then able to utilise their own personal AEA of £6,000, therefore where there are multiple beneficiaries, there will perhaps be multiple AEA available to utilise. It must be noted, where assets are appropriated, the beneficiary is receiving this as part of their inheritance and therefore will receive the proceeds.

PRs/executors are charged to CGT at the higher rates, being 28%, on gains on residential property and 20% on any other gains. Where a beneficiary has part of their basic rate income tax band available, all or part of the gain would be taxed at the lower rates of 18% on gains on residential property and 10% on any other gains.

PRs/executors should also be aware of any assets which have potentially fallen in value since the date of death and in these circumstances, where the sale is 12 months from death for shares and three years from death for property, it may be possible to claim post-mortem relief. This relief reduces the IHT payable on the death estate, in these circumstances, no capital loss will be able to be claimed as the asset has been revalued for probate purposes.

The next step

For more information on CGT and estates, please contact Fiona Wheeler, personal tax senior manager and member of STEP, on, or your usual UHY adviser.

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