The value of the residue was £1m and contains cash deposits plus a portfolio of unit trusts and open-ended investment companies (Oeics) valued at £600,000.
In April, her executors settled the IHT bill (£400,000) from the cash deposits and obtained probate. Due to a market fall, the Oeic/unit trust portfolio is now valued at £400,000.
The executors could transfer the portfolio into the names of Tom and Evie. They would each inherit £200,000 at a base cost of £300,000 on their share of the portfolio.
If they immediately sold the portfolio they would each incur a loss of £100,000 that could be offset against any other capital gains they may have now or in the future (see IHT and Capital Gains Tax).
Alternatively, the executors could sell the portfolio and distribute the proceeds (£200,000 each) to Tom and Evie.
As the executors have sold the shares at a loss they can recalculate the IHT bill using the sale proceeds rather than the value at the date of death, saving £80,000 (£200,000 at 40%) that can be distributed to Tom and Evie in addition to the investment portfolio.
In cases where the deceased passed away before a market fall, such as the one caused by Covid-19, it’s more likely their estate could be holding investments below the date of death value.
For those seeking to claim the relief there are four broad conditions that need to be met:
Shares sold must be 'qualifying investments'. These include shares and securities listed on a recognised stock exchange, authorised unit trusts and Oeics. Unlisted shares, AIM shares and investment bonds do not qualify.
Shares must be sold within 12 months of the death. Administering some estates can be a lengthy process, so executors should keep this deadline in mind if they plan to reclaim IHT already paid.
If shares have become suspended during the period since death or cancelled because a company is no longer trading, relief may still be available.
Suspended shares will deem to have been sold at the end of the 12-month period for their value at that time and any shares that have been cancelled will have deemed sale proceeds of £1.
In addition to actual sales of shares, shares transferred to a beneficiary in satisfaction of a pecuniary legacy in the will, and with the consent of the beneficiary, also count as sales.