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A testator died leaving a will by which all of his estate passed to his adult son and adult daughter in equal shares. The estate assets included shares in a company quoted on the London Stock Exchange with a probate value of £100,000. Half of the shares were transferred to the son and the other half were transferred to the daughter. At the date of the transfer, the total value of the shares was £150,000. A month later, the daughter sold all of her shares and the net sale proceeds were £85,000. Two months later, the son sold all of his shares and the net sale proceeds were £45,000. The executor has not yet completed the administration of the estate. Which of the following statements best describes the Capital Gains Tax position on the shares sold during the administration period?
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When a testator's estate is distributed, the beneficiaries receive the assets at the probate value. In this scenario, the probate value of the shares was £100,000, meaning each child received shares worth £50,000. For the daughter: Probate value of shares: £50,000 Sale proceeds: £85,000 Gain: £85,000 - £50,000 = £35,000 For the son: Probate value of shares: £50,000 Sale proceeds: £45,000 Loss: £50,000 - £45,000 = £5,000 The executor is not involved in these transactions post-transfer, so the executor does not make a gain or a loss. Thus, the correct understanding is: The daughter will make a gain of £35,000. The son will make a loss of £5,000. The executor will make neither a gain nor a loss since the shares have already been transferred to the beneficiaries.
Key Point: This question highlights the importance of understanding the transfer of assets from an estate to beneficiaries and the resulting tax implications. Knowing how to calculate capital gains and losses based on probate values is essential for accurate estate administration.
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