Blog
The International Data Insights Report: Trends in international arbitration
Mark Fallmann
We wrote recently about the effect that the interest rates rise have caused on Inheritance Tax (“IHT”).
A combination of historic house price increases, interest rates rises, delays in obtaining a Grant of Probate and the slowing property market means there are a number of estate who will end up selling properties for far less than what was reported to HMRC.
IHT is charged based on the value of the assets in the estate as at date of death. If property is sold at a loss because of fall in value since the date of death, then the estate may have paid more IHT than it should, due to the lower asset value.
Can anything be done?
Thankfully, there is a relief available account for some of the difference. HMRC allows an application to be made for relief on the loss on the sale of land. This relief provides a way for executors and beneficiaries in this situation to claim back some of the IHT they have paid to reflect the loss caused by change in circumstances. In a nutshell, the value of the sale price is swapped for its value at the time of death.
A claim for IHT loss relief for land can be made for sales within four years of the date of death. The loss must equate to more than £1,000 or 5% of the date of death valuation (whichever is lower). Importantly, the relief is not available for transfers or sales to a beneficiary or one of their relatives. Crucially, the relief is also only available if the executors have made the sale. Therefore, if the property was appointed out to a beneficiary and then sold later on, but within the four year period for a loss, no relief can be claimed.
To claim the relief HMRC will consider all property/land sales by the estate within the four year period and will adjust the relief accordingly. Special rules also apply when further assets are purchased/sold in the fourth year. The time limit for making the claim is within seven years of death, but the sale must have been made within four years of death.
There is a potential catch; if the value has gone up then you could find you are incurring additional IHT. However, with Grants taking longer, and interest rates effecting the property market, it is likely that claims for this type of relief will increase.
Whilst selling a property at a lower value may not seem the best course of action, with the IHT interest rate at 7%, and the possibility of a IHT refund on the lower sale value, it may well be the only option.
FURTHER INFORMATION
If you have any questions regarding this blog, please contact Diva Shah in our Private Client team.
ABOUT THE AUTHOR
Diva Shah is an Associate in the Private Client team. She acts for various clients including high net worth individuals, entrepreneurs, executors, trustees and individuals who lack mental capacity on a broad range of matters.
Share insightLinkedIn X Facebook Email to a friend Print