The Role of the Executor and Consideration of Capital Gains Tax

Capital Gains Tax (CGT) is a hot topic for discussion amongst our clients – at the end of the day no one wants an unnecessary tax bill and that’s why preparation and understanding is key.

What is Capital Gains Tax?

When an asset that has increased in value is sold or disposed of, CGT is the tax on this profit.

The gain which you receive as a result of disposing of the asset is the taxable element, not the whole value of the asset.

It is important to remember that CGT applies to:

1. Selling an asset
2. Giving an asset away as a gift or transferring it to someone else
3. Swapping an asset for something else
4. Compensation for assets which have been lost or destroyed

The Role of the Executor

An executor is a person named within a will who is given the role of settling the estate of the deceased – this includes money, property, and possessions.

The responsibilities of the executor are vast and include:

1. Ensuring the property of the person who has died is secure as soon as possible post-death.
2. Collecting all assets and money due to the estate.
3. Paying any outstanding taxes and debts out of the estate.
4. Distributing the estate to the named beneficiaries in the will.

It is possible to claim reasonable expenses as an executor from the estate for this work and this is something which solicitors can assist you with.

Why Do Executors Need to Consider Capital Gains Tax?

As an executor, it is vital to be aware of Capital Gains Tax and the issues that can arise.

Executors are offered a CGT allowance during the administration period, whereby assets of up to £12,300 (2020/21) can be disposed of within the current tax year without incurring any CGT.  The administration period is usually the time it takes to settle the deceased person’s affairs and get a grant of probate.  Executors are entitled to the CGT allowance for the tax year in which the death occurred and the following 2 tax years. After that, there’s no tax-free allowance against gains during the administration period.

This element can play a large role in the financial affairs of the beneficiaries and how much they will pay in CGT, so it is important that an executor is familiar with this.

How to Calculate the Capital Gains Tax Payable?

Executors should use the acquisition cost to identify whether there is any capital gain on the disposal of an asset – the acquisition cost is the value of the asset at the time of death. It must be noted that there are different CGT rates currently applicable as shown below:

1. Residential Properties – CGT is charged at 28%.
2. Any other assets – CGT is charged at 20%

If you have any questions regarding the executor’s role when it comes to CGT, please get in touch with a member of the Brightshire team.