Inheritance tax – Post-mortem relief for quoted shares

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 purchased180,000/= 40%
Probate value of assets sold450,000
 
Losses realised within 12 months45,000
Less 40% restriction(18,000)
Net post-mortem relief27,000

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.

 

Search

Sign up for our newsletter

Interested in receiving the latest tax planning ideas?

Sign up to Tax Bites – our weekly update offering practical but effective tax saving tips.

Contact Us

You can use this form to request us to give you a call or if you prefer just leave us a message. Please be sure to leave us a contact number or email address for you and we will get back to you as soon as we can.

Phone
0161 927 9277

Email
office@forbesdawson.co.uk

Address
Fairbank House
Ashley Road
Altrincham
Cheshire
WA14 2DP