Does the Personal Representative stand in the shoes of the deceased?

10 May 2018

As a matter of common law, the Personal Representative (PR) of a deceased person becomes the owner of the deceased’s assets at the moment of his/her death. However, HM Revenue & Customs (HMRC) take the view that the PR does not stand in the shoes of the deceased when making elections for tax purposes. This view has been upheld by the Upper Tax Tribunal.

You may be aware of the case of Upper Tribunal (Tax and Chancery Chamber) HMRC Commrs v Peter L Drown & Mrs R E Leadley (as executors of Jeffrey John Leadley deceased) March 2017.

The deceased invested £25,000 in a company called Datalase Ltd and another £25,000 in a company called Keronite Ltd and made a loan of £334,784 to Rollestone Crown Ltd. HMRC accepted that no later than 5 April 2010 the two shareholdings were valueless and that the loan had effectively ceased to exist as an asset on 3 November 2009 when the borrower company was dissolved.

In April 2010, Mr Leadley was served with notice to file a tax return and in May 2010 was killed in a motoring accident. In January 2011, the executors filed a tax return.

The issues were:

  1. Was the executors’ claim for the loss on the shares to be relieved against income arising in 2009/10 valid? (s24 TCGA 1992 capital loss claim and s131 ITA 2007 election to claim the capital loss against income)
  2. Could the executors make a claim to carry forward against capital gains in future years the loss on the loan? (s253 TCGA 1992)

HMRC argued that the executors were not able to make either claim. The claim could only be made by the person who owned the shares and loan at the time they become of negligible value.

The Tribunal stated:

“It seems to us that, here, the possibility of a negligible value claim in respect of the shares in Datalase and Keronite died with Mr Leadley. If that seems an unsatisfactory outcome, there are other situations, as already noted, where the death of an owner of an asset can produce a tax liability lower than would have been the case had the deceased person survived.”

A similar decision was reached regarding the loans. However, the availability of claims and elections is not only restricted to negligible value claims.

Tax advisers should also consider the impact on the following claims and elections should the individual die before signing the election:

  1. Entrepreneurs’ Relief - (the helpsheet specifically states that ER claims are not available to personal representatives of deceased persons) 
  2. Holdover Relief 
  3. Herd basis
  4. Loss Relief

It seems that we should advise individuals to sign the relevant claim form as soon as the disposal event has occurred (e.g. sale or negligible value). This is supported by the decision in last year’s Upper Tax Tribunal Leadley case (HMRC v Leadley [2017] UKUT 111 (TCC)).   

As with all such tax situations, advice should also be sought before proceeding. For further details contact Ann Bibby on abibby@ellacotts.co.uk.