Inheritance tax – Post-mortem relief for quoted shares
13th May 2022
Posted in Articles, Capital Gains Tax, IHT, Inheritance Tax, Trusts and Estates by Michael Hodgson
The issue
With the cost-of-living crisis, the war in Ukraine and the prospect of a global recession, the UK stock markets are becoming an increasingly volatile place, with many stocks falling in value. Whilst this is not ideal, it offers a tax reclaim opportunity for executors of estates where the share value has dropped since death.
Post-mortem relief
Relief can be claimed when executors sell certain assets at a loss, i.e., for less than their probate value. These assets include:
1. Quoted shares and securities
2. Land and buildings
3. Assets that were valued at death as part of the estate on an aggregate basis, for example as related property of the spouse or in a qualifying IIP but are sold on a stand-alone basis.
This is known as post-mortem relief and the relief essentially recalculates the inheritance tax (IHT) payable based on the reduced values.
Shares and securities
When referring to quoted shares and securities, holdings in unit trusts, shares in open-ended investment companies and shares in common investment funds are all included. These assets must be sold within 12 months following death for proceeds lower than probate value, to enable a claim to be made (within four years of the disposal) . This will usually generate an IHT repayment.
What is often overlooked, is that it is the net loss after considering all disposals of quoted shares and securities made within 12 months of death. Care should also be taken not to acquire any other quoted shares or securities within a two-month period following the last sale (i.e., any purchased, potentially within the period up to 14 months following death) as this will result in some claw back of the relief.
Example
Mr Berry died on 31 December 2021. His death estate was calculated as follows:
| Assets sold within 12 months | Value at death | With post-mortem relief |
| 20,000 shares in Apple PLC | 100,000 | 100,000 |
| Loss on sale | (10,000) | |
| 10,000 shares in Banana PLC | 200,000 | 200,000 |
| Gain on sale | 2,000 | |
| 30,000 shares in Carrot PLC | 150,000 | 150,000 |
| Loss on sale | (37,000) | |
| Total investments | 450,000 | 405,000 |
| Net other assets and liabilities | 325,000 | 325,000 |
| Total estate value | 775,000 | 730,000 |
| Lemon PLC (Note 1) | 18,000 | |
| Less nil rate band | (325,000) | (325,000) |
| Taxable estate | 450,000 | 423,000 |
| IHT payable at 40% | 180,000 | 169,200 |
| Tax saving | 10,800 |
Note 1
Shares in Lemon PLC were acquired within 2 months of the sale of Banana PLC for £180,000. The relief is accordingly restricted as follows:
| Value of qualifying investments purchased | 180,000/ | = 40% |
| Probate value of assets sold | 450,000 | |
| Losses realised within 12 months | 45,000 | |
| Less 40% restriction | (18,000) | |
| Net post-mortem relief | 27,000 |
Note 2
Shares in Melon PLC were sold 14 months after death at a loss of £40,000, compared to probate value. But as this disposal was out of time, this loss would only potentially attract relief in the future against capital gains made by the trustees at lower rates.
Forbes Dawson view
Executors should review their portfolios in situations where there is volatility so they can act within the 12-month period where required. Timing is important for sales and acquisitions, but it should be relatively easy to maximise the reliefs with careful planning. An immediate IHT tax saving at 40% is much better than carrying forward a capital loss that can potentially only relieve tax at lower capital gains tax rates in the future.
