Technical Connection answers questions on probate and pensions
Q A client died aged 76. She nominated her husband to receive the benefits under her personal pension. Can he waive his right to receive benefits and pass this onto his adult children or grandchildren?
A Pension death benefits from a personal pension are usually paid at the discretion of the scheme – no one has a right to them. Occasionally there is a ‘binding nomination’ in place but this is unusual as it is the scheme’s discretion that provides the ability for them to be paid free of inheritance tax. The nomination is there to give the administrators a good indication of who the member would like to receive the benefits rather than directing them.
If the husband doesn’t want or need the pension funds, then he should make this clear to the administrators. They will consider who else to pay benefits to and clearly children/grandchildren become the obvious next option. However, due to a quirk in the legislation, where there is a surviving spouse/civil partner or other dependant, beneficiary’s drawdown can only be set up for those who have been nominated. Therefore, if the husband is the only person nominated, the only alternative options would be to pay a lump sum out to the children or grandchildren, or, if the lump sum payment is not desirable, beneficiary’s drawdown could be set up in name of the husband and he could choose not to draw on it and instead leave the funds invested. He can then pass the funds on to his children or grandchildren on his death by providing his own nomination to the scheme.
Q My client is the beneficiary of her father’s will. The probate value of the residence is £550,000. The estate agent valuation is £650,000. Is it correct that if the property sells for an amount in excess of the probate value then capital gains tax (CGT) will be payable on the difference?
A For the purposes of the value in the deceased’s estate for inheritance tax, this would be based on the probate value – so the personal representatives (executors) would have included a value of £550,000 when completing the estate account.
In respect of CGT, if the property is sold, then, yes, there would be CGT payable. However, who the liability would fall on will depend on the precise facts.
So, for example, if your client is the sole beneficiary and legal title of the property is to be transferred to your client, they would be deemed to have acquired the property at the date-of-death value. If they then decide to sell the property, they would be subject to CGT on any gain made on the sale, based on the proceeds less the date-of-death value – so £100,000 in this case, less any allowable deductions and the available annual exemption (AE).
Alternatively, if the executors are selling the property then they will be subject to CGT on the £100,000 gain, again subject to any allowable deductions and the available AE. Note, when dealing with the administration of the estate, the executors benefit from an AE from the date of death to the following 5 April and for the two tax years following the tax year of death, so this would be relevant if they do not manage to sell the property within that period of time.