Inheritance tax ("IHT") is calculated and paid on the value of a person's estate at the date of their death. Families are often concerned about what happens if those assets drop in value after that date of death. In some cases there is the ability to claim back IHT paid on those losses. It is important to note that a claim can only be made where assets have been sold and the estate has suffered an overall loss.
Relief for loss on sale of shares
The most common asset which can change in value from date of death to date of sale are shares. Due to the nature of the stock market, share prices can rise and fall dramatically over the course of an estate's administration. If IHT is paid on a higher value and the shares are subsequently sold at a lower value, then executors may have the ability to claim back the IHT paid on the lost value. This relief is restricted to certain types of shares and cannot be claimed on unlisted shares or shares traded on the Alternative Investment Market.
This relief can only be claimed on shares sold within 12 months of the date of death so executors must be proactive in dealing with the shares and discussing with the beneficiaries what is to be done with them. Some beneficiaries may choose to have the shares transferred to them personally so that they can sell them themselves at a time when the share price is more favourable. If this occurs then no IHT can be recovered if the beneficiary later sells the shares at a loss. Conversely, if the beneficiary later sells shares for a higher price than the date of death value, this would be considered a capital gain for the beneficiary which they may need to pay tax on.
The relief can only be used to recover the losses suffered on the overall share sales, not on each individual shareholding. If there are other shares in the estate which have been sold for a higher post death value, these gains will offset any losses. If, after all the share sales have concluded there is an overall loss, it is only this value which IHT can be recovered on.
Relief for loss on sale of land
Similarly, it is possible to make a claim to recover IHT on the sale of land or buildings where the final sale price achieved is less than the date of death value and it has been sold within 4 years of the death. This relief cannot be claimed where the difference between the date of death value and the sale price is either less than £1,000 or 5% of the value on death, whichever is lower.
Executors should aim to progress the estate administration timeously to make sure that they do not miss the opportunity to reclaim IHT where it is possible. Instructing a solicitor at the earliest opportunity will ensure that executors are properly advised on the administration of an estate and the reliefs which are available.