Take inherited investments as cash or funds?

[Chrysalis]

I’m about to inherit the proceeds of an ISA which are held in OEICs. Can anyone explain the tax differences between taking the bequest in specie (ie transferring the funds into my name) vs selling the funds and distributing as cash?
For additional context - I am fine with the actual fund selection. However, my aim is to gift the bequest to a range of individuals and charities over a period of 1-2 years, so would be selling up over that period anyway. I also have enough unwrapped funds already to take care of my CGT allowance.
I don’t yet know whether the funds will have increased or decreased in value between date of death and date of distribution. My guess would be a small rise in value.
Thanks for any insight.

[Alaric]

Can anyone explain the tax differences between taking the bequest in specie (ie transferring the funds into my name) vs selling the funds and distributing as cash?

I'd doubt there is one, other than an immediate potential CGT liability if you take cash. Isn't the base cost for CGT the value on the date you inherited them, being the date of death of the previous holder? That's how it works for houses.

[Urbandreamer]

Well.....

If you are the spouse then as I understand it, you inherit with no tax implications at all.
They even simplified the law recently, you use to inherit the value of the ISA on death for use as an ISA, but inheriting the contents of the ISA had to wait for probate, which complicated all sorts of things.

If you are not a spouse then you inherit the contents of the ISA, but not it's status. Hence as I understand it you may have IHT to pay based upon the value at probate. CGT on it's contents would be calculated from the date of death to when you sell any of the assets. However I doubt that you can sell before probate anyway so the question is moot.

However may I sugest that if you intend to gift some of your inheritence, particularly to charities, that you consult a solicitor as to the possibility of varying the will. You could save tax, there by increasing the gift.

[DrBunsenHoneydew]

Here's something I hadn't previously realised:

If you die with an ISA and a spouse/civil partner, that partner still gets the spouse inheritance ISA allowance (additional permitted subscription) to use, even if the deceased's ISA funds are left to someone else.

Say, for example, that you'd saved up £50,000 in your Isa when you die. Your spouse will be able to make an additional contribution to their Isa of up to £50,000, in addition to their own annual Isa allowance - which is £20,000 in the 2018-19 tax year.

This allowance is regardless of what's in your will. Which means that even if the money is left for someone else to inherit, such as your son or daughter, your partner is still entitled to an increased allowance equivalent to the value of your Isa assets.

So if you left £50,000 worth of Isa assets to your child, your partner would still be entitled to an increased Isa allowance of £50,000, although they would be using their own money to fund it.

[Dod101]

Dr BH

That is exactly what happened with me when my wife died. She left the assets in her ISA to her own son (my stepson) but I got the shell of the ISA or if you like the right to use her value in the ISA and treat it is an additional subscription (which I did) Very helpful in the circumstances.

Dod

[Chrysalis]

So to clarify I am not the spouse of the deceased and varying the will is not an option I want to pursue.
I understand that the ISA tax status disappeared on death (so in that respect it’s a red herring and can be ignored).
My question is this. If the funds are liquidated prior to distribution of the estate (there is more than one residual beneficiary) is there a difference in tax paid (and by whom) compared with if the funds are transferred to me in specie and then sold?

[Chrysalis]

And of course the IHT will have been paid by the estate prior to distribution, using other funds, so that is also irrelevant.

[Alaric]

My question is this. If the funds are liquidated prior to distribution of the estate (there is more than one residual beneficiary) is there a difference in tax paid (and by whom) compared with if the funds are transferred to me in specie and then sold?

As noted above, the tax point where the CGT clock is started is the date of death. That's your liability, not that of the estate.

[PinkDalek]

My question is this. If the funds are liquidated prior to distribution of the estate (there is more than one residual beneficiary) is there a difference in tax paid (and by whom) compared with if the funds are transferred to me in specie and then sold?

As noted above, the tax point where the CGT clock is started is the date of death. That's your liability, not that of the estate.

It might be the liability of the Executors and personal representatives if the disposal is by them (rather than distributed in specie prior to ultimate disposal), subject to the availability of the annual exempt amount:

https://www.gov.uk/government/publicati ... es-for-cgt


It is unclear if the OP is aware of the new rules applicable for deaths on or after 6 April 2018. I'm assuming the date of death is way before then but please ask if not.

[swill453]

So to clarify I am not the spouse of the deceased and varying the will is not an option I want to pursue.
I understand that the ISA tax status disappeared on death (so in that respect it’s a red herring and can be ignored).
My question is this. If the funds are liquidated prior to distribution of the estate (there is more than one residual beneficiary) is there a difference in tax paid (and by whom) compared with if the funds are transferred to me in specie and then sold?

AFAIK it's not possible for a non-spouse to get an in specie transfer of the contents of an ISA after death. Have you been told otherwise?

Scott.

[PinkDalek]

So to clarify I am not the spouse of the deceased and varying the will is not an option I want to pursue.
I understand that the ISA tax status disappeared on death (so in that respect it’s a red herring and can be ignored).
My question is this. If the funds are liquidated prior to distribution of the estate (there is more than one residual beneficiary) is there a difference in tax paid (and by whom) compared with if the funds are transferred to me in specie and then sold?

AFAIK it's not possible for a non-spouse to get an in specie transfer of the contents of an ISA after death. Have you been told otherwise?

Scott.

I'm not the OP and I didn't know that but this [Publication Date 30 January 2015] https://www.thegazette.co.uk/wills-and- ... ontent/320 includes:

ISA and investment companies will distribute the proceeds as the executor instructs, either as a cash payment to a central account for onward distribution, or transfer the investments themselves ’in-specie’, direct to specific beneficiaries.

[swill453]

Actually that could be right. https://www.gov.uk/guidance/close-void- ... sa-manager has:

While an ISA ceases on the death of the investor who died on or before 5 April 2018, the regulations are silent on what must happen to the account itself.

Scott.

[Chrysalis]

PD, no, I don’t know the new tax rules from 6 April. Can you enlighten/explain what you linked me to?
I’ve been doing a bit of reading and my understanding is that the estate is liable for CGT on any assets it disposes of (for the gain since date of death). Whereas I assume if the funds are transferred in specie and I sell them then I am liable for CGT. That was really the hub of my question - which is more beneficial for me? And is my understanding correct?
And yes, the broker will transfer the funds in specie if that’s what I elect. (I wish I’d never mentioned the blooming ISA now, it’s totally irrelevant to this issue!)

[PinkDalek]

PD, no, I don’t know the new tax rules from 6 April. Can you enlighten/explain what you linked me to? ...

I didn't link to the new ISA rules for deaths on or after 6 April 2018 but they are summarised here https://www.gov.uk/guidance/who-can-inv ... ager#death

Death of an investor on or after 6 April 2018

Any ISA held will be designated a ‘continuing account of a deceased investor’ and will remain so until the earlier of:

completion of the administration of the deceased’s estate
closure of the account
third anniversary of the death of the account investor …

Funds held within a continuing account of a deceased investor continue to benefit from ISA tax advantages. Any interest, dividends or gains in respect of investments in a continuing account of a deceased investor are exempt from tax. …

(I wish I’d never mentioned the blooming ISA now, it’s totally irrelevant to this issue!)

It would depend on the date of decease etc as above.

[Chrysalis]

Thanks pd. unfortunately the new rules do not apply. But can you advise whether my understanding above is correct, and if so how I can work out what option is better?

[PinkDalek]

Thanks pd. unfortunately the new rules do not apply. But can you advise whether my understanding above is correct, and if so how I can work out what option is better?

Yes your I’ve been doing a bit of reading and my understanding is that the estate is liable for CGT on any assets it disposes of (for the gain since date of death). Whereas I assume if the funds are transferred in specie and I sell them then I am liable for CGT. would appear to be correct.

That was really the hub of my question - which is more beneficial for me? And is my understanding correct?

I don't think anyone can say.

Has the estate other chargeable assets/gains and has it or will it use its own Annual Exempt Amount? If not and if disposing of the OEICs doesn't give rise to CGT in the Estate then fine but you'll then have cash and you say you aim is to gift the bequest to a range of individuals and charities over a period of 1-2 years so maybe being in cash isn't a problem.

If you receive the bequest in specie then your CGT cost will be the market value on the date of death. Gifts to qualifying charities are CGT exempt (neither a capital gain nor a capital loss arises). Perhaps you could make the charitable donations, from you personally, in specie, if a disposal would give rise to CGT personally (you earlier having indicated you already use your personal Annual Exempt Amount).

Hope that makes some sense. I have "man flu" so I'm making even less sense than normal.

[Chrysalis]

Thanks PD. I didn’t know that about charities, so that’s good to know.

[PinkDalek]

Thanks PD. I didn’t know that about charities, so that’s good to know.

As with all these things, there's plenty of detail:

https://www.gov.uk/government/publicati ... to-charity

I haven't studied the above but found this of interest:

Chapter 5.15: Charity asks for the shares or securities to be sold on its behalf

5.15.1 If you contact the charity about making a gift of shares and securities and the charity asks you to sell them on its behalf, you can do so. However, you’ll need satisfactory evidence (such as an exchange of letters) to show that you’ve made the gift of the investment to the charity and that the charity asked you to dispose of the investments on its behalf. Otherwise, you may be treated as having made a disposal on your own account and the cash you give to the charity may be treated as a Gift Aid donation. This may also incur a Capital Gains Tax charge.

5.15.2 Once the company registrar has received the stock transfer form and ownership has been transferred, you can no longer dispose of the shares for the charity.