Covid-19 has had a huge impact on the economy and the stock market, because of this, there are many who have paid inheritance tax on shares that have since fallen in value and sold at a loss. So the big question is, can you reclaim inheritance tax when you are selling shares at a loss?
Inheritance Tax Payment
The inheritance tax due on an estate will be calculated based on the value of the deceased’s assets on the date of their death. A formal valuation should be presented to HMRC, and if any inheritance tax is due, it must be paid out of the estate before it is distributed to the beneficiaries.
When the value of shares increase in value before they are sold, they are not subject to an additional inheritance tax but instead fall under the bracket of Capital Gains Tax. However, suppose the value of the shares decreases between the date of death and the date of sale. In that case, there is a process that you can use in order to reclaim the inheritance tax that was paid. If you haven’t paid any inheritance tax, you cannot reclaim any.
Loss on sale of shares relief
This refund of inheritance tax can only be claimed if the shares have actually been sold at a loss. The shares falling in value and the loss as part of a portfolio or shareholding is not enough.
This form of relief was introduced by the Finance Act 1973 and can now be found in the Inheritance Tax Act 1984. The relief allows for a personal representative to claim inheritance tax relief if inherited shares are sold at a lower value than they were when the estate was valued, and the inheritance tax was paid.
Conditions of Relief
The application for inheritance tax relief has to be made within 4 years of 12 month period that the sale of the inherited shares was made in. There are other conditions that have to be met in order to have the inheritance tax relief.
- The shares that are sold must be qualifying investments (we’ll come to this shortly)
- The shares must be sold in the 12 months following the deceased’s date of death.
- The claim must be made by an appropriate person.
- The claim must be for an overall loss.
Qualifying Investments
Qualifying investments are not just any investment. They are first and foremost, listed shares, that is shares that are listed on a recognised stock exchange anywhere in the world, as well as unit trusts.
Unlisted shares and shares that are traded on the Alternative Investment Market do not qualify for relief, and any loss cannot be recovered.
Appropriate Person
Though this may seem like a rather terrifying term, all it means is someone who is liable for the tax. Normally this would be the executor or administrator of the will. They are also the ones who have to apply for the inheritance tax relief. Beneficiaries do not qualify as appropriate persons and would not be granted the inheritance tax relief.
Need more details on inheritance tax relief? Call our experts today to have all of your questions about probate and inheritance tax answered.