Appropriation of Assets “To Appropriate or Not”

If a person is entitled to a legacy under a Will, it could be that they might prefer to have an alternative asset transferred to them either in full or partial satisfaction of that legacy.

This is known as an appropriation of assets.

An appropriation should always be evidenced in writing, by a Deed or Memorandum of Appropriation, and the beneficiary should sign this to show their consent to the arrangement.

The deceased’s Will may contain formal requirements in relation to an appropriation or in the case of an intestacy where there is no Will, the Statutory Power of Appropriation in Section 41 of the Administration of Estates Act 1925 would apply.

The valuation of the assets being appropriated is important as the appropriation must not result in a beneficiary receiving more than their share of the Estate under the terms of the Will or intestacy.  The assets will therefore be valued at the date of the appropriation as opposed to the date of death.

During the administration of an Estate, if an asset is sold but the value has increased significantly since the date of death, then Capital Gains Tax (CGT) may be payable.  An appropriation of the asset to beneficiaries prior to the sale can reduce the CGT liability, as the asset would then be held on behalf of the beneficiaries instead of on behalf of the Estate.  This may have several advantages:-

• If the beneficiaries receiving the asset(s) are basic rate tax payers the tax payable would be charged at a lower rate than if it were charged to the Estate.
• If the beneficiaries are charities, as they are exempt from CGT an appropriation would allow the exemption.
• If there is more than one beneficiary entitled to the Residuary Estate, there would be multiple annual tax free allowances to apply against any gain as opposed to only one for the Personal Representatives of the Estate.

If you need any advice call our Specialist Wills Team.