What is an appropriation?

12 October 2021

With the property market continuing to go from strength to strength, as a Personal Representative dealing with a deceased’s person estate, you may find yourself in a position where the deceased’s home sells for significantly more than the value as at the date of death, resulting in capital gains tax (CGT) becoming payable.

But what is capital gains tax and what steps should a Personal Representative consider taking in order to mitigate any tax liability?

What is capital gains tax?

CGT is a tax on the profit when certain assets that have increased in value are sold or disposed of (e.g. gifted). It’s the gain the estate makes that’s taxed, not the amount of money the estate receives. When administering an estate, the gain is calculated as the difference between the value of the asset as at the date of death and the value of the sale proceeds.

CGT only applies to the sale or disposal of certain types of assets, for example, property, personal items worth more than £6,000 or shares that are not in an ISA.

The gain may be reduced by certain allowable deductions, for example, legal and estate agent fees and expenditure incurred in enhancing the value of the asset. In addition, as with individuals, the estate has an annual allowance to CGT which is currently £12,300 which, provided the estate has not made any other gains during the relevant tax year, can be used to offset the gain. If the gain exceeds the annual allowance, an estate pays CGT at the higher rate which is 28% for residential property or 20% on other chargeable assets.

So, are there any steps a Personal Representative should consider taking when the gain made looks set to exceed the estate’s annual allowance?


In order to mitigate the amount of CGT payable, an executor can consider ‘appropriating’ assets, or shares of the same, to one or more of the beneficiaries in order to make use of more than one annual allowance for CGT.

An appropriation is a conscious decision made by a Personal Representative to take an asset out of the general pool of assets within the estate and transfer the equity in that asset to a specified beneficiary. The estate will still retain the legal title, however, the beneficial title will belong to the beneficiary. The asset appropriated to the beneficiary will be treated as having been appropriated in satisfaction of, or in part satisfaction of, their interest in the estate i.e. the beneficiary will be deemed to have received part of their entitlement to the estate.

Once the asset (or a share of the same) has been appropriated, any gain made on the sale of the asset (or a share of the same) will be treated as the beneficiary’s for CGT purposes. The beneficiary’s annual allowance can therefore be used against their share of the gain and any gain exceeding the annual allowance will be taxed at the beneficiary’s rate of tax. This can be particularly beneficial if the beneficiary is a lower rate tax payer as any gain will be taxed at 20% (for residential property) or 10% (for other chargeable gains).

If, for example, the deceased’s home were selling for a gain that exceeded the estate’s annual allowance, the Personal Representative could consider appropriating, say, a 50% share of the property to the beneficiary whilst the estate retains the remaining 50% share. 50% of the gain will then be treated as having been made by the estate and the remaining 50% as having been made by the beneficiary. The gain will therefore be spread across two annual allowances which could significantly reduce the amount of CGT payable.

For now, our advice is check whether you are impacted and if so, keep an active eye on proceedings. We will of course follow up with further articles in Private Lives as details become clearer – be sure to subscribe to keep up to date!

This article is from the autumn 2021 issue of Private Lives, our newsletter covering the key legal and tax issues that individuals face. To download the latest issue, please visit the newsletter section of our website.

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The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at October 2021.


Lucy Edwards


+44 (0)1473 921713


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