COVID-19: Claiming overpaid Inheritance Tax

COVID-19: Claiming overpaid Inheritance Tax following sharp falls in the stock market

Tom Elliott, Partner, Head of London Private Clients
09/04/2020
COVID-19: Claiming overpaid Inheritance Tax

The stock market has fallen sharply over the past month as a result of the global coronavirus crisis. Any individual who has recently inherited shares may be entitled to claim a repayment in relation to the Inheritance Tax (IHT) suffered due to the significant falls in stock market valuations.

IHT is calculated based on the market value of the assets at the date of death. It is payable at 40% on the value of an individual’s estate in excess of £325,000, and is due for payment within 6 months of the end of the month in which the individual passed. 

If an individual inherits stocks and shares and decides to sell the shares within 12 months of inheriting the assets, they may be eligible to make a claim for the overpaid IHT if the value of the shares has decreased and sold at a loss.

Example

If an individual inherits a share portfolio with a value of £600,000 at the date of death and assuming the deceased had no other assets, IHT of £110,000 would be payable. If the share portfolio subsequently decreases in value to £400,000, the IHT payable would decrease to £30,000. The individual may then make a claim for a repayment of IHT amounting to £80,000. Effectively the claim allows for the sale price of the shares disposed of to be substituted for their date of death values.

Claiming the repayment

In order to claim the repayment, the shares must be sold in the 12 months immediately following the date of death. Every sale of qualifying investments that are sold within 12 months of the date of death must be included in the claim, not just those that have fallen in value as relief is only available where the aggregate value of investments sold is lower than as at the death of death. Qualifying investments for the purposes of the claim are shares and securities listed on a recognised stock exchange at the date of death, UK government stock and holdings in unit Trusts.

The claim for relief must be made within four years of the end of the 12 month period during which the qualifying sales are made, (five years from the date of death).

Relief for land and property

It is too early to say whether the UK property market will see a significant ‘correction’ in valuations as a result of the current crisis. If this does prove to be the case, there is a similar relief if an individual inherits land and property and the appropriate person subsequently sells the land or property at a loss within three years (four years if special conditions are met) of the date of death.

The criteria for qualification for this relief are more demanding than for the relief for qualifying investments and specialist advice should be sought to ascertain whether these are met before a claim is made.

Disposals of any other interest in land and property comprised in the deceased’s estate by the appropriate person will be included in the claim if disposed of within 4 years of the date of death, apart from sales made in the fourth year at a profit.

The claim for relief must be made within four years of the end of the four year period during which the qualifying sales are made. While the sale of the inherited asset would crystallise a loss, it does create the opportunity to reclaim IHT which could appeal to many families at this time.

For more information and to discuss your individual circumstances please contact your usual Crowe contact.

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Tom Elliott
Tom Elliott
Partner, Head of London Private Clients
London