Guidance

HS282 Death, personal representatives and legatees (2021)

Updated 6 April 2024

This helpsheet explains how Capital Gains Tax (CGT) applies when someone dies, and in particular how to compute gains or losses made by the personal representatives and those who inherit property from the deceased. But it’s only an introduction. If you’re in any doubt about your circumstances you should ask your tax adviser. We will also be pleased to help you and provide any forms you may need. The Capital Gains Manual explains the rules in more detail.

This helpsheet will help you fill in the Capital Gains Tax summary pages of your tax return.

Find out more about liability to Inheritance Tax

Meaning of expressions used

In general, these notes refer to the legal terms used in England and Wales. In most respects the taxation principles are the same where the law in Scotland or Northern Ireland applies. However, the general law background may differ slightly. Because of the differences in general law some of the terms used for cases in Scotland may be different from those used in these notes.

Personal representatives is the term used here for the persons who are responsible for settling the affairs of a deceased person. It includes both executors and administrators (in Scotland, these are executors nominate and executors dative).

The administration period is the period during which the personal representatives are settling the estate. It starts on the date of death of the deceased person and usually ends for tax purposes when the residue of the estate has been made certain. If, however, there are disputes about the will, the administration period is not regarded as ended until they’re resolved.

The residue of the estate is made certain when the net balance of the estate has been identified and sufficient funds have been provided to allow any liabilities to be paid.

A legatee is defined for CGT purposes as including any person benefiting from a testamentary disposition (normally a will), or on an intestacy or a partial intestacy. For this purpose legatees include trustees of a settlement arising under the terms of the will or intestacy.

General position

When a person dies there’s no CGT charge. Instead there are special rules. In broad terms, the assets which were owned by the deceased at the date of death (including any joint interests which in effect pass immediately to the survivor(s)) are treated as though they had passed to the personal representatives or other person to whom they pass by law at the date of death, at their market value on that date. When the administration of the estate has been completed and the assets remaining in the estate are passed to the legatees, they’re treated as though they had passed to the legatees at the date of death at their market value on that date.

From 6 April 2019 if you sell (or dispose of either directly or indirectly) the whole or part of an interest in UK residential or commercial property or other UK land when non-resident, you must tell HMRC within 30 days of the date of conveyance and you may have to pay CGT on any gains you make. You can find more information on this in HS307 Non-Resident Capital Gains (NRCG) on direct and indirect disposals of interests in UK land and property.

If you’re the personal representative of a deceased person who lived abroad and UK residential or commercial property or other UK land has been (either directly or indirectly) disposed of after 5 April 2019 you will need to report the disposal to HMRC.

From 6 April 2020 if you sell or dispose of the whole or part of an interest in UK residential property you must tell HMRC within 30 days of the date of conveyance and you may have to pay CGT on any gains you make. More information can be found at Report and pay Capital Gains Tax on UK property.

The Annual Exempt Amount (AEA) is available for disposals in the same year as the death or the following 2 years.

Example 1

Mr Andrews dies on 10 October 2019. At the time of his death he owns a house, value £175,000, some shares, value £25,000 and money in a bank account, £20,000. All of these are treated as passing to his personal representatives at those values.

The administration of the estate is completed on 31 January 2021. At that date the house is worth £200,000 and the shares £18,000. Those assets are passed to Mr Andrews’ legatees but are treated as having been acquired by the legatees on 10 October 2019 at values of £175,000 and £25,000.

CGT liability for periods up to the date of death

Before death the deceased may have disposed of assets. There may be CGT arising. Returns of the gains may not have been sent to us, or the correct amount of tax may not have been agreed. The personal representatives must agree with us the liability of the deceased up to the date of death. This will include:

• settling any points that are open for those years in which tax returns have already been made
• completing a tax return for the period from the previous 6 April to the date of death, plus tax returns for any years where a return is outstanding
• agreeing the liability for those years and making appropriate payments

Annual Exempt Amount (AEA)

There’s no restriction imposed on the amount of the AEA for a year in which an individual dies, where available. The whole of the AEA is available to set against the deceased’s chargeable gains arising in that year, however short the period from 6 April to the date of death.

Losses in the year of death

If the deceased disposed of assets in the part of the tax year before death, there may have been losses on some assets rather than gains. If so, those losses must first be set against any chargeable gains made in that period.

The losses must be set against all gains, even if this reduces the net chargeable gains to below the amount of the AEA.

If any allowable losses remain after this has been done, those excess losses may be carried back. The losses can be set off against gains arising in the 3 tax years prior to the tax year in which death occurs, but the losses must be set off against gains in a later year before making set-offs against gains of an earlier year.

Losses carried back in this way are only set off so that the net chargeable gains are reduced to the amount of the AEA. The full benefit of the AEA is still applicable for those years.

Any losses not set against gains of the part of the tax year before death and the 3 previous tax years cannot be used.

Such losses cannot be used by the personal representatives, or the legatees in any circumstances.

Example 2 - Losses carried back

Mrs Gee died on 30 September 2020. In the period 6 April 2020 to 30 September 2020 she had chargeable gains of £1,000 and allowable losses of £10,000. In the 3 previous tax years her net chargeable gains were:

Year	Amount
2017 to 2018	£20,200
2018 to 2019	£3,000
2019 to 2020	£12,300

First, set the 2020 to 2021 losses against her gains of that year.

2020 to 2021

Chargeable gains	£1,000
Allowable losses	£10,000
Set-off	£1,000	£1,000
Net chargeable gains	zero
Excess losses available to carry back	£9,000

Second, set off excess losses against gains of earlier years, taking into account later years before earlier years. Therefore consider 2019 to 2020 first.

2019 to 2020

	Amount
Chargeable gains	£12,300
Covered by AEA	£12,000
Limit set-off to	£300

Therefore reducing CGT to zero.

Allowable losses brought back	£9,000
Set-off 2018 to 2019	£300
Excess loss to carry back	£8,700

Third, consider next 2018 to 2019. Net chargeable gains of £3,000 are already wholly covered by the AEA. Therefore, none of the losses brought back should be set against these gains.

Fourth, consider next 2017 to 2018.

2017 to 2018

	Amount
Chargeable gain	£20,200
Covered by AEA	£11,300
Available to set loss against	£8,900

As this exceeds the losses brought back of £8,700, all those losses can be set against the 2017 to 2018 assessment.

Net chargeable gains before set-off	£20,200
Minus losses brought back	£8,700
Revised net chargeable gains for 2017 to 2018	£11,500
Minus AEA	£11,300
Gains chargeable to tax	£200

CGT liability for the period of administration

During the period of administration, the personal representatives may be liable to CGT if they sell or otherwise dispose of any of the assets in the estate. This does not apply when assets are passed to legatees under the terms of the will, and so on.

During this period the personal representatives have absolute control over the assets, except those that have been passed to the legatees. They’re not bare trustees or nominees for the legatees.

Where:

• an asset has not been formally transferred to a legatee
• the residue of the estate has not been ascertained
• the asset is disposed of by the personal representatives
• a gain arises

The gain is chargeable on the personal representatives and not the legatee.

Residence status of the deceased

In general terms, only individuals who are treated for tax purposes as resident in the UK are liable to CGT.

The personal representatives of a deceased individual are treated as a single and continuing body of persons having the same residence and domicile status as the deceased. So, if the deceased was not resident in the UK before their death, then the personal representatives will not be liable on disposals even if they are themselves resident in the UK.

Where, despite being not resident, the deceased would still have been liable to CGT on the disposal of particular assets (for example, where the assets had been used in a trade carried on in the UK through a permanent establishment or UK residential property), then the personal representatives will also be liable on any disposal of those assets.

You can get more information on residence and domicile in the Residence, remittance basis etc notes.

Calculating gains and losses

In calculating gains and losses, most of the normal CGT rules apply to personal representatives as to individuals, but there are some differences.

The assets that were owned by the deceased at the date of death are treated as though they had passed to the personal representatives at the date of death at their market value at that date. This value is their ‘cost’ or acquisition value.

Where the personal representatives acquire assets during the course of administering the estate, the actual cost or value of those assets is used in calculating gains or losses on their disposal.

AEA to personal representatives

The full amount of the AEA is allowed to personal representatives for the:

• period from the date of death to the following 5 April (no matter how short this period is)
• 2 tax years following the year of death Where gains arise in a later year, no AEA is due.

Rate of tax

For 2020 to 2021 the rate of CGT for personal representatives is 28% on residential property or 20% on other chargeable assets. These rates are the same as for trustees.

Expenses incurred by personal representatives

Personal representatives incur legal and other expenses in the administration of the estate, for instance, in obtaining a grant of probate. If they sell or dispose of some of the assets of the estate, then some of that expenditure may be allowable in calculating the gains or losses. Because of the way solicitors charge for their services, it’s often difficult to isolate the allowable expenditure from other expenditure which isn’t allowable.

We will accept calculations which include deductions for costs of establishing title which are based on a published scale. The scale is published as Statement of Practice SP02/04 (for deaths after 6 April 2004).

Personal representatives are entitled to claim the actual expenditure where this is known.

This expenditure is only available where the personal representatives dispose of assets.

Transfer of assets to legatees

When the personal representatives have completed the administration of the estate, they will pass the assets to the legatees in accordance with the wishes of the deceased in the will, or under rules laid down where there’s no will. The administration is usually completed when the residue of the estate has been ascertained.

When the personal representatives pass the assets to the legatees, no CGT is charged. Under the special rules the assets, which were owned by the deceased at the date of death, are treated as though they had been acquired by the legatees at the date of death at their market value on that date (see Example 1).

Sometimes the personal representatives will themselves acquire assets during the course of the administration and these assets may be passed to legatees under the terms of the will, and so on. In that case those assets are treated as though they had been acquired by the legatees on the date the personal representatives acquired them, at the cost to the personal representatives or the value at which the personal representatives acquired them.

Treatment of legatees

All assets acquired by a legatee following a death, which were assets owned by the deceased at the date of death, are treated as though acquired by the legatee at the:

• date of death
• market value on the date of death

Assets acquired by the personal representatives during the course of the administration under the terms of the will are treated as though they had been acquired by the legatee at the:

• date of acquisition by the personal representatives
• cost to the personal representatives or the value at which they were acquired by the personal representatives

If the legatee subsequently sells or otherwise disposes of those assets, the normal rules of CGT will apply.

The legatee is not entitled to claim unused losses of the deceased or personal representatives or any of the expenses incurred by the personal representatives in establishing title to the estate. They may claim on any future disposal any expenditure incurred by them or by the personal representatives relating to the actual transfer of the asset to the legatee.

Valuation of assets of the deceased at the date of death

A legatee is treated as though assets acquired from an estate were acquired at their market value.

A legatee may sometimes acquire only part of an asset. For instance, a holding of shares may be divided between a number of legatees, or several legatees may become joint owners of an indivisible asset such as land.

Where this happens, the acquisition cost of each legatee’s share is an appropriate fraction of the market value of the holding or asset acquired by the personal representatives.

The value of an asset at the date of death may need to be ascertained in order to calculate the Inheritance Tax liability of the estate. It may also be needed for CGT purposes as an acquisition cost if either the personal representatives or the legatee subsequently disposes of the asset. Because the valuation is used in arriving at the liability under both taxes, there are special rules to make sure that the same value is used in dealing with each tax.

Example 3

On 31 December 2019 a person dies having a shareholding of 600 shares in a company. This represents a 60% holding in that company and is valued at £60,000 or £100 a share. On the date of death a holding of 200 shares, or 20% of the company, would have been valued at £2,000 or £10 a share.

When residue is made certain, each of the 3 legatees receives 200 shares from the personal representatives. They are each treated as having an acquisition cost of 1/3 of £60,000 (the personal representatives’ acquisition value). Their acquisition cost is therefore £20,000, not the value of £2,000 that would have been placed on a 20% shareholding.

Where:

• the value of an asset is needed for the purposes of both taxes
• that value has been ‘ascertained’ for the purposes of Inheritance Tax on the estate of the deceased at death

That value is also to be used as the acquisition cost for CGT purposes.

In some cases HMRC may not need to determine the values of some or all of the assets. This can happen, for example, where all the assets pass to a surviving spouse or civil partner and the entire estate is exempt, or where the estimated value of the estate is well below the threshold on which the tax is payable, or where particular assets qualify for 100% relief from Inheritance Tax.

In such cases, the values will either not have been considered in any detail or not considered at all and are not thereby ‘ascertained’ under the special rules mentioned above. In some cases where a person dies, the value of the estate of their late spouse or civil partner may need to be valued for Inheritance Tax purposes, although there had been no liability on the first death because it was within the nil-rate band for Inheritance Tax, after any spouse or civil partner exemptions. This is because a sum representing the unused nil-rate band on the first death is added to the nil-rate band for the second death. You can find more information in the Inheritance Tax Manual. In this situation, whatever the interval between the deaths, the value on the first death is not regarded as ascertained for Inheritance Tax purposes.

If the asset is disposed of either by the personal representatives or legatees, the acquisition value will have to be agreed or determined.

Variation of the terms of the will or intestacy

Sometimes, the legatees of an estate decide that they want to change the way in which the estate is to be distributed. This can be done by a deed of variation, or a similar legal document.

Where the document is legally valid, and if certain conditions are met, then the:

• variation will be treated for CGT purposes as not being a disposal
• rules outlined in this helpsheet will apply as they would if the variation had in fact been included in the will

In other words, the rules outlined in this helpsheet apply as they would if the terms of the deed had been included in the will, and so on. The conditions, all of which must be satisfied, are that:

• the variation must be effected by an instrument in writing made within 2 years of the deceased’s death
• the persons who wish to give up all or part of their entitlement under the will or intestacy provisions must be parties to the instrument
• there must be no consideration in money or money’s worth for the variation other than consideration in the form of a disclaimer or variation of other dispositions of the same estate
• the instrument must contain a statement that the parties intend section 62(6) Taxation of Chargeable Gains Act 1992 to apply

Checklist form IOV2 can help in meeting the requirements for an instrument that’s effective for CGT (and/or Inheritance Tax) purposes.

Sometimes proceedings are brought under the Inheritance (Provision for Family and Dependants) Act 1975. Where the court makes an order under section 2 of that Act, the terms of that order are deemed to have applied from the date of death for all purposes. There are, therefore, no capital gains disposals on the making of the order and the special rules outlined in this helpsheet apply.

Where the conditions are not met, and the terms of the deed are not treated as though included in the will, the variations will involve disposals by some of the parties which may have CGT consequences. This is a complex area and in such cases you may want to seek professional advice.

Sometimes a trust is declared in the deed of variation. If this trust replaces an absolute gift of assets under the will, then the person who gave up their entitlement under the will, in favour of the trust, is the settlor of that trust for CGT purposes. If the trust replaces in whole, or in part, another trust declared in the will, then the position is not straightforward and you should ask the office dealing with the estate or your tax adviser for help, but if it was executed after 5 April 2006 the testator is regarded as the settlor.

Inheritance Tax

Inheritance Tax is administered by HMRC.

If you write to HMRC Inheritance Tax at the address below, please quote the deceased’s HMRC reference number. If you don’t know it, you should give the full name of the deceased and the date of their death.

HMRC Inheritance Tax
HMRC
BX9 1HT
United Kingdom

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