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HMRC internal manual

Capital Gains Manual

Death and Personal Representatives: Liability to the date of death and procedures: Introduction

The normal rules of Capital Gains Tax apply in dealing with the affairs of a person up to the date of death. These are supplemented by additional rules dealing with the treatment of

  • assets held by the deceased on the date of death of which he or she was competent to dispose
  • gifts made by donatio mortis causa

and

  • unused allowable losses arising in the year of death

 

Annual exemption

There is no restriction imposed on the amount of the annual exemption for a year in which an individual dies. The whole of the exemption is available to set against gains arising in that year however short the period from 6 April to the date of death.

 

No disposal on death - TCGA92/S62 (1) (b)

There is no chargeable occasion for Capital Gains Tax purposes when an individual dies as regards assets of which that individual was competent to dispose, see CG30360+. TCGA92/S62 (1)(b) says that for the purposes of that Act the assets of which a deceased was competent to dispose shall not be deemed to have been disposed of by him on his death (whether or not they were subject to a testamentary disposition). For practical purposes this can be regarded as covering all the assets in which the deceased had an interest.

 

Held-over gains and death

Several provisions provide

  • for gains to be held-over when a certain type of new asset is acquired

and

  • to subsequently be brought back into charge if the new asset is disposed of.

 

Examples are

Qualifying corporate bonds issued on qualifying share exchanges TCGA92/S116
   
Compensation gilt-edged stock TCGA92/S134
Replacement of business assets with depreciating assets TCGA92/S154
Replacement of compulsorily purchased land with depreciating land TCGA92/S248 (3)

 

Because the legislation in TCGA92/S62 (1)(b), says that for capital gains purposes there is no disposal by the deceased on death, the transfer of assets occurring at the date of death is not an event triggering the charge to recover the held-over gains.

 

Cessation of use - TCGA92/S154 (2) (b)

For gains held-over on the replacement of business assets with depreciating assets, in addition to the recovery of the held-over gain being triggered by a disposal (TCGA92/S154 (2)(a)) the charge is also triggered if the claimant ceases to use the assets (TCGA92/S154 (2)(b)). Although such a cessation of use occurs on death, there is no chargeable gain that accrues before the claimant’s death which can be assessed in accordance with TMA70/S40. The other provisions holding over gains do not contain any corresponding provision and in those cases there is no recovery charge at death.