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HMRC internal manual

Capital Gains Manual

Death and Personal Representatives: Variation of the devolution of an estate: Variations: estate: deeds of appointment: power to appoint

Where a deceased person’s will directs that when assets of the estate vest they are to be held on trust, then the terms of that trust specified in the will may empower the trustees to appoint assets out of the trust to legatees.  This is frequently because IHTA84/S144 (see IHTM35181) in specified cases treats the appointment, provided it is made within 2 years of death, for all IHT purposes as if it had been made in the will.  There is no corresponding provision for CGT.

The assets will normally vest in the trustees on the ascertainment of residue, see CG30940+. But, occasionally, specific steps may be taken to vest assets in will trustees in advance of residue being ascertained see CG30900+. Where the trustees exercise their powers of appointment AFTER the assets have vested then the assets concerned will already have passed out of the estate and into the hands of the trustees. In these circumstances the exercise of the power of appointment so that a beneficiary becomes absolutely entitled amounts to a disposal for CGT purposes.

Where the trustees exercise their powers of appointment before the assets have vested in them then the assets are still in the hands of the personal representatives at the time of the exercise. Even though these may be the same individuals as the trustees they are different bodies of persons for CGT purposes, see CG31110+. If, in these circumstances, the trustees make an appointment under the specific powers given to them in the will, then when the asset(s) vest they should be treated as passing direct to the appointee.

The asset(s) appointed should be treated as never becoming subject to the trust. In effect, the appointment is read back into the will. It is treated as though the deceased had intended the assets concerned to pass directly to the legatee rather than into trust. The appointee then takes those asset(s) as legatee and therefore acquires the asset(s) at probate value by reason of TCGA92/S62 (4), see CG31140+. The time limits and procedures in TCGA92/S62(6) and (7) do not apply to this treatment.