Learning Outcomes
This article explains the Capital Gains Tax (CGT) responsibilities of personal representatives during the administration of a deceased person’s estate, focusing on how CGT liabilities arise, how gains and losses are calculated, and how the probate (date‑of‑death) value operates as base cost for disposals. It explains the availability and limits of the estate’s annual CGT exemption, the applicable CGT rates for personal representatives, and how losses are set off and carried forward across tax years within the administration period. It covers the 60‑day UK residential property CGT reporting regime, self‑assessment and informal HMRC procedures for other disposals, and the record‑keeping standards expected in SQE1‑style problem questions. It also examines the CGT treatment of transfers to beneficiaries, including appropriations and the passing of latent gains, and the interaction between CGT and income tax on estate income. Finally, it reviews key reliefs and planning techniques relevant to personal representatives—such as Principal Private Residence Relief, Business Asset Disposal Relief, post‑mortem IHT reliefs, and appropriations to charities—so that exam candidates can address estate sales, timing of disposals, and optimisation of exemptions and reliefs in SQE1 problem‑style scenarios.
SQE1 Syllabus
For SQE1, you are required to understand the tax responsibilities of personal representatives during estate administration, especially regarding Capital Gains Tax, with a focus on the following syllabus points:
- the liability of personal representatives for Capital Gains Tax on disposals of estate assets
- calculation of gains and losses, including the use of date-of-death values as acquisition cost
- application of annual exemptions and relevant reliefs (e.g., Principal Private Residence Relief, Business Asset Disposal Relief where available)
- reporting and payment deadlines for CGT, including special rules for residential property
- the interaction between CGT, income tax, and estate administration
- the effect of asset transfers to beneficiaries and the passing of latent CGT liability
- planning techniques such as appropriation before sale (including to charities) and managing annual exemptions across tax years in the administration period
- record‑keeping expectations and when estates use self‑assessment versus HMRC’s informal arrangements
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- When are personal representatives liable to pay Capital Gains Tax during estate administration?
- What value is used as the acquisition cost for CGT purposes when an estate asset is sold by the personal representatives?
- What is the annual CGT exemption for estates, and how long does it apply?
- What is the reporting deadline for CGT on the sale of UK residential property by personal representatives?
- How does Principal Private Residence Relief apply to estate administration?
Introduction
During the administration of a deceased person's estate, personal representatives (PRs)—executors or administrators—are responsible for settling the deceased's tax affairs. This includes liability for Capital Gains Tax (CGT) if estate assets are sold for more than their value at the date of death. PRs must calculate gains, apply exemptions and reliefs, and comply with strict reporting and payment deadlines. Understanding these duties is essential for SQE1 and for effective estate administration in practice.
Death itself is not a disposal for CGT purposes. Instead, PRs are treated as acquiring the deceased’s assets at their market value at death (probate value). From that starting point, any gains realised on PRs’ disposals during the administration period may be chargeable. Where IHT values have been formally ascertained, that ascertained value is used as the CGT base cost. Post‑mortem IHT reliefs can, in some cases, adjust the CGT base cost for PRs.
Key Term: personal representatives (PRs)
The executors or administrators responsible for collecting in, managing, and distributing the estate of a deceased person.Key Term: Capital Gains Tax (CGT)
A tax on the profit (gain) made when certain assets are sold or otherwise disposed of for more than their acquisition cost.
Personal Representatives' Liability for Capital Gains Tax
Personal representatives are liable to CGT if they dispose of estate assets and those assets have increased in value since the date of death. This liability arises only on actual disposals (e.g., sales or gifts) made during the administration period. Transfers (appropriations) to beneficiaries under a will or intestacy are not disposals for CGT purposes and do not trigger CGT in the hands of PRs.
In practice, CGT can arise on sales of residential property, land, shares, and other chargeable assets. Many chattels will be exempt (e.g., wasting chattels), and some gains may be relieved (e.g., a home qualifying for Principal Private Residence Relief).
Calculation of Gains
For CGT purposes, the acquisition cost of an estate asset is its market value at the date of death. When PRs sell an asset, the gain is the difference between the sale proceeds (less allowable costs) and the date-of-death value.
Key Term: date-of-death value
The open market value of an asset at the date of the deceased's death, used as the acquisition cost for CGT calculations during estate administration.Key Term: probate value
The market value of an asset at death as used for the grant and IHT computations; if formally ascertained for IHT, it becomes the CGT base cost for PRs and for beneficiaries.
Allowable deduction items include:
- costs of acquisition borne by the estate (e.g., valuation and title-confirmation costs where relevant for establishing or defending title)
- enhancement expenditure that increased the asset’s value and was not revenue in nature
- disposal costs (e.g., agents’ fees, legal fees, Stamp Duty or SDRT on share transactions where applicable)
If the asset is sold for less than its probate value, a capital loss arises. PRs set losses against gains in the same tax year. Any excess losses are carried forward to offset future chargeable gains (recognising PRs’ shorter exemption window—see Annual Exemption below).
Where the IHT value of quoted shares or land has been adjusted by post‑mortem relief, the adjusted value generally becomes the CGT base cost.
Key Term: post‑mortem relief
Reliefs available for IHT (e.g., on certain share or land sales at a loss) which, if claimed, can alter the probate value and thereby adjust the CGT base cost.
Some assets are exempt (e.g., wasting chattels; non‑wasting chattels where proceeds do not exceed the statutory threshold). Always check whether the asset falls outside the CGT regime before computing gains.
Annual Exemption
PRs benefit from an annual CGT exemption equal to the individual annual exempt amount for that tax year, but only for the tax year of death and the following two tax years. After this period, no annual exemption is available to the estate.
Key Term: annual exemption (CGT)
The amount of gains that can be realised in a tax year before CGT is payable. For estates, this applies only for the year of death and the next two tax years.
The figure for the annual exempt amount changes from time to time. In calculations, apply the annual exempt amount applicable to the relevant tax year.
CGT Rates
The rates of CGT for PRs are:
- 20% for most assets
- 28% for gains on residential property
These rates apply regardless of the PRs’ or beneficiaries’ income.
Reporting and Payment Deadlines
PRs must report and pay CGT on disposals of UK residential property within 60 days of completion. This requires submitting a UK Property CGT return and paying the amount due by the 60‑day deadline. For other assets, CGT is reported and paid by 31 January following the end of the tax year in which the disposal occurred (self‑assessment or HMRC’s informal arrangement for simple estates, as applicable).
Key Term: 60-day CGT return
A special reporting requirement for disposals of UK residential property, requiring CGT to be reported and paid within 60 days of completion.
Where the administration spans multiple tax years, PRs may file returns for each affected year or, if the estate is “simple” under HMRC criteria, settle a single computation for the entire period using informal payment arrangements (always confirm eligibility with HMRC).
Transfers to Beneficiaries
When PRs transfer assets to beneficiaries in satisfaction of a legacy or share of residue, this is not a disposal for CGT purposes. The beneficiary acquires the asset at its date-of-death value. If the beneficiary later sells the asset, they are liable for CGT on any gain since the date of death (after allowing their own deductions and annual exemptions).
Appropriation before sale can be a useful planning tool: if PRs appropriate the asset to a beneficiary and the beneficiary then sells, any gain is taxed on the beneficiary. That can be advantageous where the beneficiary has an annual exemption or losses available, or where the beneficiary is a charity (see below).
Key Term: appropriation
The transfer of a specific asset from the estate to a beneficiary in satisfaction of their entitlement.
Income Tax During Administration
PRs are also responsible for income tax on income arising during the administration period (e.g., rental income, interest, dividends). Income tax is calculated and paid at basic rates; PRs do not benefit from personal allowances, savings allowances, or the dividend allowance. PRs should provide beneficiaries with tax certificates (e.g., forms confirming tax deducted or paid) for income distributed.
Key Term: administration period
The period from the date of death until the completion of the estate administration, during which PRs manage the estate's assets and liabilities.
For PRs:
- non‑savings income and interest are taxed at 20%
- dividends are charged at the dividend ordinary rate (currently set for individuals; PRs pay at that rate and cannot claim the dividend allowance)
- interest on loans taken to pay IHT may be deductible against estate income (subject to conditions and limited time periods)
PRs should distinguish income due before death (taxable on the deceased) from income arising after death (taxable on the estate).
Reliefs and Exemptions
Principal Private Residence Relief
If the deceased's main residence is sold during administration, Principal Private Residence (PPR) Relief may exempt some or all of the gain from CGT, provided the property was the deceased's only or main residence at some point. The final period exemption is now 9 months.
For PRs, PPR Relief can still be available even though the PRs themselves did not occupy the dwelling: the relief operates by reference to the deceased’s qualifying occupation and deemed occupation periods, including the final 9‑month period. Relief may be restricted for parts used exclusively for business or for let periods that do not qualify as deemed occupation.
Key Term: Principal Private Residence Relief (PPR Relief)
A relief that exempts all or part of the gain on the sale of a property that was the owner's only or main residence.
Hold-Over Relief
Hold‑over relief is generally not required on routine transfers from PRs to beneficiaries because those appropriations are not disposals for CGT. Hold‑over relief (under TCGA 1992 ss.165 or 260) is relevant in other contexts—particularly for gifts of business assets during lifetime or when assets leave certain trusts—and is not typically applied to PRs’ distributions under a will or intestacy.
Key Term: Hold-Over Relief
A relief allowing CGT on certain gifts (e.g., business assets) to be deferred until the recipient disposes of the asset.
Business Asset Disposal Relief
PRs may, in limited circumstances, qualify for Business Asset Disposal Relief (BADR) at 10% on gains if the disposal is made within the statutory window after death and the deceased would have satisfied the qualifying conditions had they made the disposal immediately before death. Always check the latest HMRC guidance on the availability and conditions in the context of PRs.
Key Term: Business Asset Disposal Relief
A relief that can reduce CGT to 10% on qualifying business disposals, subject to conditions and time limits.
Appropriation to Charities
If residue (or a specific asset) is left to a charity, gains on disposals by the charity are generally exempt. To avoid PRs incurring CGT on a sale of an appreciated asset intended for a charity, PRs can appropriate the asset to the charity and then sell as nominee for the charity (recorded appropriately). This ensures any gain is exempt in the charity’s hands and avoids CGT for the estate.
Other Reliefs
- Investors’ Relief and EIS‑related deferral may be relevant for beneficiaries or trusts, but PRs’ access is constrained and fact‑dependent.
- Loss relief planning: PRs should consider whether claiming IHT post‑mortem relief on shares or land is preferable to crystallising a CGT loss. Where IHT loss relief is claimed, the adjusted value becomes the CGT base cost, often eliminating the CGT loss but reducing IHT, which is typically charged at higher rates than CGT.
Reporting and Compliance
PRs must keep detailed records of all asset valuations, sales, and associated costs. Timely reporting is essential, especially for UK residential property, where the 60-day deadline is strictly enforced. Late reporting can result in penalties and interest.
Estates may be “simple” or “complex” for HMRC purposes:
- Simple estates can use HMRC’s informal arrangements to settle the total income tax and CGT liability for the whole administration period with a single payment and computation.
- Complex estates (e.g., large estates, higher levels of proceeds or tax due) must file self‑assessment tax returns for each tax year spanning the administration period.
PRs should also:
- manage use of the annual exempt amount in the year of death and the next two tax years by timing disposals across tax years where possible
- consider appropriation before sale where the beneficiary’s tax position is favourable
- ensure any claims for IHT post‑mortem relief (on shares or land) are coordinated with CGT treatment and base cost adjustments
Worked Example 1.1
The estate of Mr. Patel includes a flat valued at £300,000 at death. The PRs sell the flat 10 months later for £340,000, incurring £5,000 in estate agent and legal fees. What is the chargeable gain, and what are the reporting obligations?
Answer:
The gain is £340,000 (sale price) minus £300,000 (date-of-death value) minus £5,000 (costs) = £35,000. The PRs can use the annual exempt amount if within the first two tax years after the year of death. As the asset is UK residential property, the gain must be reported and CGT paid within 60 days of completion via a UK Property CGT return.
Worked Example 1.2
An estate includes shares valued at £50,000 at death. The PRs sell the shares for £60,000 in the second tax year after death. There are no other gains or losses. What is the CGT liability?
Answer:
The gain is £60,000 - £50,000 = £10,000. If within the year of death or the following two tax years, the estate’s annual exempt amount for that year can be used. If the annual exempt amount is equal to or greater than £10,000 for that year and no other gains arise, the exemption covers the gain and no CGT is payable.
Worked Example 1.3
The PRs appropriate a rental property to a beneficiary. The property was valued at £200,000 at death. The beneficiary sells it a year later for £220,000. Who is liable for CGT, and on what amount?
Answer:
The beneficiary is liable for CGT on the gain since the date of death: £220,000 - £200,000 = £20,000 (less any allowable costs and their own annual exemption). There is no CGT on the appropriation itself because it is not a disposal by the PRs.
Worked Example 1.4
A portfolio of quoted shares was valued at £400,000 at death. Within 12 months, the PRs sell the shares for £360,000. The estate claims IHT share loss relief. How does this affect CGT?
Answer:
If IHT share loss relief is validly claimed, the adjusted sale value is substituted for the probate value for IHT purposes and becomes the CGT base cost. The PRs’ CGT base cost becomes £360,000, so there is no CGT loss to claim on the share sale (only disposal costs may be deductible for CGT). The IHT reduction obtained typically outweighs any CGT planning benefit.
Worked Example 1.5
Mrs. Green’s main residence is valued at £500,000 at death. The PRs sell it 8 months later for £520,000, incurring £8,000 selling costs. Can PPR Relief apply?
Answer:
Yes, PPR Relief can apply to disposals by PRs of the deceased’s only or main residence by reference to the deceased’s occupation (including the final 9-month deemed occupation). Assuming the property was the deceased’s main residence throughout and no disqualifying use occurred, the gain is relieved. Even if partial restriction applies, PRs can still claim relief proportionally.
Worked Example 1.6
The estate sells an investment property (not a main residence) for £300,000 with probate value £310,000 and £4,000 selling costs. In the same year, the PRs sell shares realising a £20,000 gain. How are losses and the annual exemption applied?
Answer:
The property disposal produces a capital loss of £300,000 - £310,000 - £4,000 = £(14,000). This loss is set against the £20,000 share gain in the same tax year, leaving £6,000 net gain. The PRs can then apply the estate’s annual exempt amount for that year to the £6,000, potentially eliminating any CGT. Any excess loss after offset is carried forward.
Exam Warning
For UK residential property sales by PRs, the 60-day reporting and payment deadline is mandatory. Missing this deadline results in automatic penalties and interest, regardless of the reason for delay.
Revision Tip
When calculating gains, always use the date-of-death value as the acquisition cost for PRs. Keep records of all valuations and sale costs for HMRC compliance. Consider appropriation before sale where it benefits beneficiaries (or charities), and manage the timing of disposals to maximise the use of annual exemptions in the allowed years.
Key Point Checklist
This article has covered the following key knowledge points:
- PRs are liable to CGT on gains made from sales of estate assets during administration.
- The acquisition cost for CGT is the asset's market value at the date of death (probate value), and if IHT values are ascertained or adjusted by post‑mortem relief, those values feed into CGT base cost.
- The annual CGT exemption applies for the tax year of death and the next two tax years only; thereafter, estates have no annual exemption.
- CGT on UK residential property sales must be reported and paid within 60 days of completion.
- Principal Private Residence Relief may exempt gains on the deceased's main home (including the 9‑month final period).
- Hold‑over relief is not generally applicable to PRs’ appropriations to beneficiaries because appropriations are not disposals.
- Business Asset Disposal Relief may be available in narrow circumstances for PRs where the deceased would have qualified and timing conditions are met.
- Transfers of assets to beneficiaries (appropriations) are not disposals for CGT; beneficiaries acquire assets at date‑of‑death value and are taxed on subsequent gains.
- PRs are responsible for income tax on estate income during administration and pay at basic rates without personal allowances; limited deductions (e.g., loan interest to pay IHT) may be available.
- Accurate record‑keeping, correct valuation, and timely compliance with reporting deadlines (including 60‑day UK property returns) are essential to avoid penalties and ensure correct tax outcomes.
- Planning points include appropriation to charities or beneficiaries before sale and timing disposals across tax years to optimise use of annual exemptions and losses.
Key Terms and Concepts
- personal representatives (PRs)
- Capital Gains Tax (CGT)
- date-of-death value
- probate value
- post‑mortem relief
- annual exemption (CGT)
- 60-day CGT return
- appropriation
- administration period
- Principal Private Residence Relief (PPR Relief)
- Hold-Over Relief
- Business Asset Disposal Relief