Inheritance TaxAug 5 2020

Reclaiming IHT in wake of coronavirus market impact

  • Explain how IHT share loss relief works
  • Explain how to claim the relief
  • Identify the ways in which the relief claim impacts the nil rate band
  • Explain how IHT share loss relief works
  • Explain how to claim the relief
  • Identify the ways in which the relief claim impacts the nil rate band
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CPD
Approx.30min
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Approx.30min
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CPD
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Reclaiming IHT in wake of coronavirus market impact

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.

But this is only where the beneficiary is entitled to a fixed cash amount from the estate rather than a share of the residue.

Claims must be made within five years from the date of death. Although the sale has to be made within 12 months of the date of death, the claim for relief can be made up to five years from the date of death. Relief is claimed by completing form IHT35.

There are also CGT benefits for those that do not claim the relief.

Shares must be sold by the appropriate person. The appropriate person is liable for the tax. This will usually be the executor or personal representatives dealing with the assets in the free estate. However, it could also be the trustees who may be liable for paying tax on a trust in which the deceased held an interest in possession.

IHT and Capital Gains Tax. The impact of IHT on CGT is another important factor for those deliberating share loss relief. IHT and CGT are linked. If IHT is paid on an asset at death then there isn’t usually a charge to CGT. There are a number of scenarios relating to CGT and other tax bands to consider: 

Claiming the IHT loss relief

Claiming IHT relief on share loss amends the base cost for GCT.

The executors will normally acquire the shares or Oeics at a base cost equal to the value at the date of death (often referred to as 'market uplift').

If a claim is made for a loss on sale of shares, then the base cost for CGT will also be substituted for the market value of the shares when they were sold.

Effectively, this means that executors will not benefit from the loss twice.

Not claiming IHT loss relief – the CGT benefits

There are also CGT benefits for those that do not claim the relief.

Loss relief cannot be claimed if there is no IHT is payable on the estate.

For example, smaller estates, or estates that are passing to the surviving spouse will not see any benefit.

However, if the executor is still planning to sell shares on behalf of the beneficiary, it might be better to use the loss to offset capital gains on other assets. 

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