Solicitors Qualifying Examination (SQE) Practice Exa\

When is Capital Gains Tax (CGT) payable by personal representatives (PRs)?

1. When an asset is sold within a year

2. When an asset is transferred to a beneficiary

3. When a beneficiary is not related to the deceased

4. When property is inherited

The correct answer is: When an asset is transferred to a beneficiary

Capital Gains Tax (CGT) is payable by personal representatives (PRs) when an asset is transferred to a beneficiary. This is because the transfer can trigger a disposal for CGT purposes, as the beneficiary may potentially realize a gain or loss on the inherited asset, depending on its value at the time of inheritance compared to its value at the time of transfer. When the PR transfers an asset to a beneficiary, this is seen as a disposal at the market value on the date of the transfer. If the asset has appreciated in value since the deceased originally acquired it, then this transfer may result in a CGT liability that must be settled by the estate, rather than the beneficiary directly. In contrast, the other options do not directly correspond to when CGT is specifically payable by PRs. Selling an asset within a year may not alone trigger CGT liability for the PR unless there is a gain made. The relationship of the beneficiary to the deceased does not directly affect CGT liability at the point of inheritance. Inheritance itself does not incur CGT at the time of inheritance, as the effective disposal point for CGT is when the asset is subsequently disposed of by the beneficiary.