Most of us are aware that IHT is levied based upon the value of the estate at the date of death. Further, IHT needs to be paid before probate is granted and investments can be sold. Bearing in mind the current market volatility, those investments could be worth a lot less now. Paying tax on a higher value in these circumstances does not quite feel fair, and HMRC agree.
IHT share loss relief allows the bill to be recalculated and some IHT reclaimed. The relief applies only to “qualifying” investments which include shares and securities listed on a recognised stock exchange, authorised collective investments. Unlisted shares, and perhaps surprisingly, AIM shares do not qualify. Of course, many AIM shares do qualify for Business Relief, but not all.
Executors need to discuss the options with the beneficiaries as investments can be passed to beneficiaries “in specie” and they can decide when to sell and this may have some Capital Gains Tax advantages if there is a loss. However, it is the executors that need to make the sales if IHT is to be recovered. The top rate of CGT is 24%, so for most part, claiming back the IHT at 40% would be sensible.
The executors need to sell the investments within 12 months from date of death to be able to claim the relief. As we know, many estates take longer than this to obtain probate to allow the executors to act. If they manage that, they have five years from the date of death to make the claim.
A second consequence of IHT loss relief is that some of the Residential Nil rate Band could be recovered on larger estates. For estates above £2m, the RNRB is reduced by £1 for every £2 above the £2m.
Clearly, this is not a comprehensive explanation of IHT loss relief, but a general outline. Naturally, executors will be aiming to minimise the tax take and maximising the sums inherited by the beneficiaries, so should be made aware of the facility to reclaim.
In our opinion, this shows the need for professional advice when winding up an estate. The “do it yourself” approach may mean that beneficiaries miss out.
Please feel to contact us if you would like to discuss IHT planning so that the minimum amount of IHT is due in the first place.
