The current volatile markets, and effects of COVID-19, have severely affected the value of shareholdings and portfolios. If you are a personal representative where inheritance tax has been paid on the date of death value of the holding, this will be of particular interest to you.
Through the Inheritance Tax Act, statutory relief is given to the person responsible for paying inheritance tax due on an estate, where they have sold qualifying investments at a loss within 12 months from the date of death. Inheritance tax will therefore be calculated based on the gross sale proceeds of the shares sold within the 12 month period rather than the date of death value that was initially submitted to HMRC in the inheritance tax account. You as the personal representative may be keen to take advantage of the relief, however, caution should be taken for reasons we set out below.
The statutory relief applies only to the loss on the sale of 'qualifying investments', which for the purposes of this relief are:
- Listed shares and securities (including those that are listed on a recognised foreign stock exchange)
- Unit trusts
- Shares listed on NASDAQ (National Association of Securities Dealers Automated Quotations)
Unlisted shares and shares trading on the Alternative Investment Market (AIM) are not qualifying investments.
Shareholdings cannot be viewed in isolation when applying the relief. There must have been an overall loss on all sales and all qualifying investments have to be considered in the claim (not just those that have fallen in value). It is also only the gross sale proceeds that can be considered when determining whether there has been a loss and therefore any agent commission, for example, will be disregarded.
The sales must have been made within the period of 12 months immediately following the date of the death, and any holding sold after this time cannot be taken into account. The claim is made on Form IHT35 and contract notes must be analysed to obtain the gross sale prices for each holding. A claim for the relief must be made within 4 years of the end of the 12 month period during which qualifying sales can be made.
It should be noted that a claim will only be successful if it relates to the sale of a shareholding. If you as a personal representative have transferred or appropriated the shareholding in specie to a beneficiary or legatee, and they then sell, the relief will not be available. The beneficiary/legatee will receive the holding at the probate value and any sale of the holding will be made in their personal capacity and any gain/loss would be reportable on their own personal tax return.
There is much to consider if you are deciding on whether to sell shareholdings held within an estate. Obtaining the relief should not be the driving force behind any sale but this is a valuable relief to be aware of if there is no option but to sell in order to raise cash for payment of tax and other estate liabilities. This should be a carefully thought through process and one that we can help to navigate you through. We do not provide investment advice so financial advice should also always be sought from a qualified investment manager when considering any sale.