20th April 2020
In a time of falling stock values, executors need to be aware that they may be able to claim inheritance tax repayments. If for example an estate contained a share portfolio valued at £500,000 which has now fallen in value by 30%, a repayment of £60,000 might be due. The rules for the relief are strict, so these need to be understood to make sure relief can be claimed.
Inheritance Tax is levied based on the value of a person’s assets at the date of death. The executors can then either sell the assets and distribute the cash or distribute the assets themselves.
Where quoted shares and securities are sold by executors for less than the value at the date of death, they may be able to claim a repayment of inheritance tax.
When can I claim relief?
The relief is available if executors sell quoted shares or securities within 12 months from the date of death for less than they were worth at death.
I made some gains on sales earlier in the year, can I ignore these?
You can only claim relief for the overall loss made on all sales made in the 12 month period so these gains must be deducted from losses.
Do I have to sell the shares or can I transfer them to a beneficiary?
Only actual sales of shares by the executors will be taken into account. This can be helpful if you have a mixture of gains and losses. You can transfer shares that show a gain to beneficiaries and sell the shares that show a loss. You will then get relief for the full losses made on the shares sold.
The beneficiary hopes the shares will recover in value and wants to keep them.
The executors can sell the shares to crystallise a loss and send the cash to the beneficiary. The beneficiary could then reinvest into the same investment. Anti ‘bed and breakfasting’ rules would not apply here.
How much repayment will the executors get?
The repayment will usually be the lower of 40% of the fall in value of the shares sold and the total inheritance tax previously paid. It’s important to note that relief is only available on the fall in value of the shares, selling costs cannot be added to the loss.
Are other reliefs available?
Relief can be available on losses made on properties sold within four years of death. Relief can also be claimed if tax is payable on the gift of an asset during a lifetime which has fallen in value by the date of death.
For more information on this topic, please contact Stephanie Parker or your usual haysmacintyre advisor.