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An opportunity to reduce or reclaim IHT

An ever increasing number of Estates are in the position of paying Inheritance Tax (IHT) at a rate of 40%. For those who have died in the last twelve months, who had a portfolio of quoted shares and securities, the value of their Estate for IHT purposes will most likely have reflected past stock market prices, which have since been significantly impacted by the coronavirus crisis.

The pandemic has had a huge impact on global stock markets with the value of many shares and unit trusts falling drastically.

There may be an opportunity to reclaim or reduce IHT as Mathew Bromley explains.

Executors of Estates who have sold qualifying investments within one year of the date of the death may be eligible to reclaim some IHT paid.

For Estates where the person died within the past twelve months and where shares are standing at a loss in comparison to the value at the date of death it might be beneficial to sell shares in order to reduce or reclaim IHT.

The executors must consider and calculate the potential IHT saving against the actual crystallisation of losses on the sale and consider how any capital losses realised can be utilised.

Any claim for relief must include all qualifying investments sold within the year following the date of death, not just those which were sold at a loss. Total proceeds from the sales are then substituted for death values. There are rules which apply if investments of the same description are repurchased within two months of the last sale which will have the effect of reducing the available loss. Each case needs to be looked at based on its own facts.

There is a similar relief available where land and buildings are sold within four years of the date of death where both a higher or lower value can be substituted for probate value. An election can’t be made if there is no IHT payable and so it’s generally not advantageous to make an election when the property was sold for more than probate value as this would increase the IHT due.

Contact our Wealth Management team if you’d like to discuss this further.

Disclaimer

The information was correct at time of publishing but may now be out of date.

Wealth Management
Posted by Matthew Bromley
24th June, 2020
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