The page you were trying to view is not available for your role and region.
How are assets held on death assessed for inheritance tax (IHT)?
Assets held in an estate upon death are typically assessed for IHT at their ‘open market value’ - the price which the property might reasonably be expected to fetch if sold in the open market at that time. It is also known as the probate value and is used to calculate IHT.
Should these assets reduce in value over the coming months or years, and are subsequently sold by the personal representatives, there is planning to be considered. This is because the value received by any beneficiaries will be lower than that used as the basis for the calculation and payment of IHT.
What is loss relief?
Loss relief allows an adjustment to be made for the purpose of IHT according to the value when sold. Separate claims with different conditions are available for shares and funds, and land and property. These also set out the appropriate timescales within which claims can be made.
Shares and funds (claim form IHT35)
For shares and funds, the appropriate person must undertake the claim no later than five years following death, but only for disposals within one year of death. Qualifying investments include shares and securities on UK and foreign exchanges, authorised unit trusts and OEICS. Unlisted shares and securities do not qualify.
The calculation should take into account all shares that are sold in the deceased’s estate within the year following death. This includes those that give rise to a gain as well as a loss, because it will be the net amount of all the qualifying investments sold that will be relieved. The numbers are calculated on gross proceeds, excluding incidental cost of sales. There are special rules for cancelled or suspended assets which cannot be sold, but that may result in relief.
Anti-avoidance provisions exist to ensure that assets sold at a loss for the sake of making a claim and then swiftly repurchased are matched if made within two months of the sale. If the shares were given to a beneficiary to satisfy a pecuniary legacy, with the consent of the person receiving the legacy, this will count as a sale, but otherwise not for gifts.
Land and property (IHT38)
A similar relief applies for post-death sales of land and property within four years of death and claimed within seven years. Gains on other land or property disposed of within three years must be netted off, but only losses on the fourth year need to be taken into account. In terms of anti-avoidance, re-purchases should not be made within four months after the last sale within three years following death. The contract date is normally the date of exchange.
Do any other restrictions apply?
If the difference between the value at death and the value at sale was lower than £1,000 or 5% of the probate value, relief is not available.
Also, in order that the relief is not artificially created, relief is not available when a sale is made to a person, or certain connected persons, who are beneficially entitled. The relief will not apply if the purchaser was only entitled to some of the property sold.
Loss relief is not automatic and must be formally claimed. It should not be taken for granted. It is also worth noting that reducing the taxable estate could have the effect of reinstating some, or all, of the residence nil rate band, so effectively the advantage could be 60%, rather than 40%.
Investments and the income from them can go down as well as up and past performance is no guarantee of future returns. You may not recover what you invest.
This material is not tax, legal or accounting advice and should not be relied on for tax, legal or accounting purposes. Quilter Cheviot Limited does not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting adviser(s) before engaging in any transaction.
Tax treatment varies according to individual circumstances and is subject to change. Trusts, estate planning, mortgage, tax: Trusts, Estate planning, Buy to Let Mortgage, Taxation and Inheritance Tax Advice are not regulated by the Financial Conduct Authority.
