CG31140 - Death and personal representatives: legatees and their treatment: acquisitions by legatees
TCGA92/S62 (4) (b)
During the period of administration a legatee holds only a chose in action, see CG30760. When the beneficial ownership of an asset vests in a legatee, see CG30900+, TCGA92/S62 (4)(b) directs that the legatee is to be treated as if the acquisition of the asset by the personal representatives had been the legatee's acquisition of the asset.
Date of acquisition
Since the personal representatives were deemed to have acquired the asset at the date of death it follows that the legatee is treated as acquiring the asset at the date of death.
Acquisition value
The acquisition value will also be market value at the date of death. Where a single asset passes to a legatee this is straightforward. HMRC staff should ask the Valuation Office, for land and buildings, or Shares and Assets Valuation, for any other assets, to provide a valuation. Where divisible assets such as a holding of shares have to be shared out amongst legatees or where legatees become joint owners of an indivisible asset such as land, 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, see CG74244.
Example
On 31 December 2013 personal representatives acquire the deceased's shareholding of 600 shares in a company. This represents a 60 per cent holding in that company and is valued at £60,000 or £100 per share. On the date of death a holding of 200 shares or 20 per cent of the company would have been valued at £2,000 or £10 per share.
When residue is ascertained each of the three legatees receives 200 shares from the personal representatives. They are each treated as having an acquisition cost of one-third of £60,000 (the personal representatives acquisition value). Their acquisition cost is thus £20,000 not the value of £2,000 that would have been placed on a 20 per cent shareholding.
In addition the personal representatives acquire the sole ownership of a parcel of land. This is valued at £100,000 at the date of death. On this date a 50 per cent interest in the land would have been valued at £45,000.
When residue is ascertained two legatees become equal joint owners of the land. They are each treated as having an acquisition cost of one-half x £100,000 (the personal representatives acquisition cost). Their acquisition cost is thus £50,000 for their 50 per cent interest not the value of £45,000 that would otherwise have been placed on such a holding at the date of death.
Payments by legatees to personal representatives
If an estate has insufficient liquid assets to pay its liabilities and a legatee wishes to receive a particular asset rather than it being sold on the open market by the personal representatives the legatee may agree with the personal representatives that he will provide them with sufficient funds to settle the estate's liabilities in return for them transferring the asset to him. Such an arrangement was considered in the case of Passant v Jackson, 59TC230. The Appeal Court held that the arrangement was a sale of the property. So in any case involving a similar arrangement it should not be accepted that there was merely a transfer of an asset to a legatee under cover of TCGA92/S64 (4).