Inheritance Tax Loss Relief – What you need to know.
Inheritance Tax can be a difficult matter to deal with. With the emergence of COVID-19 and the application of government lockdown restrictions, the economy has found itself struggling. The uncertainty of what is to come has seen stock markets plummet and the property market put on pause. Those administering the estates of individuals who passed away prior to COVID-19 may now face a difficult situation of selling shares and property at a lower value than was initially anticipated. If Inheritance Tax has already been calculated and paid based on higher anticipated values, there may be an option to reclaim tax paid on the “lost” value of these assets.
Inheritance Tax (IHT) is generally applied to estates valued over the “nil-rate band”. The basic nil-rate band is £325,000 for an individual and so tax may be payable on estates which exceed this value. Tax is calculated on the value of assets at the date of death. This may have been considerably higher than the actual value achieved on the sale of shares or property following the impact of COVID-19.
Inheritance Tax Loss Relief allows the appropriate persons (usually the Personal Representatives of the estate) to apply for a refund of the overpaid tax if property or shares are sold at a “loss”.
For example, if the date of death valuation for listed shares was £50,000, tax applied at 40% could have been paid at £20,000. If those shares are later sold for £40,000, the appropriate level of tax would have been £16,000. In the circumstances, Inheritance Tax loss relief would allow the appropriate people to reclaim the overpaid tax of £4,000.
What you need to know – Loss Relief for Shares:
A claim for IHT loss relief can be made for sales of listed shares and securities and unit trusts. It is not available for non-listed or AIM shares. The relief applies to sales which take place within 12 months of death.
HMRC will consider all such sales which take place during this period and will apply the calculation to the whole picture. This means that if some shares sell for a higher value than the date of death value, the relief will be adjusted accordingly.
HMRC will also consider any purchases of assets made by the estate. The relief is applicable on sale and does not apply to basic transfers to beneficiaries except in specific circumstances.
The time for making the claim is within 5 years of death.
What you need to know – Loss Relief for Land/Property:
A claim for IHT loss relief for land can be made for sales within 4 years of the date of death.
The loss must equate to more than £1,000 or 5% of the date of death valuation (whichever is lower).
As with the sale of shares, to claim the relief HMRC will consider all property/land sales by the estate within the 4 year period and will adjust the relief accordingly. Special rules apply when further assets are purchased/sold in year 4.
The relief is not available for transfers or sales to a beneficiary or one of their relatives.
The time limit for making the claim is within 7 years of death.
The claim process itself is fairly straight forward however, once a claim has been made it cannot be withdrawn. It is therefore important that you seek advice and assistance if you think an estate you have been involved with may benefit from this relief.
If you would like more information regarding any Inheritance Tax issues you are facing Talk to Tollers…on 01604 258558. Our Trusts and Estates team are here to provide advice and can assist with starting any claim you may have regarding a refund of overpaid inheritance tax.
More information on the services our Specialist team provide can be found here: https://www.tollers.co.uk/wills-trusts-and-estates/