Deceased and decreased

19 July 2019

With Brexit proving to be a never-ending saga, and with leadership changes underway in Parliament, the variety of financial fallouts seems to grow day by day. The two-year low £ / € exchange rate might be most obvious on your radar, but if you’re an executor have you considered the possibility of reducing an inheritance tax charge?

What happens when someone dies and their share portfolio subsequently decreases in value? What can be done to protect the executors?

Loss on qualifying investments

Brexit is certainly having an impact on the share value of certain companies.

The executors could be faced with a sizeable inheritance tax charge if the date of death share values are taken at a peak in the market, and if those share values fall following their death it may be possible to make a claim via form IHT35.

Form IHT35 looks at the value of the shares at the date of death and makes a comparison to their value at the point of sale within the subsequent 12 months. It isn’t possible to extend the 12-month period and a Grant of probate/letters of administration must be obtained prior to selling the shares at a loss in order to be eligible to make such a claim.

Qualifying investments for this relief are classed as:

  • Shares and securities on a registered stock exchange
  • UK government gilts, and
  • Holdings in unit trusts

The claim can’t be made for unquoted holdings, loan notes, and holdings listed only on the AIM market. It is possible that business property relief (BPR) could have been claimed on such holdings and consequently they wouldn’t have been exposed to IHT, but that’s for another blog.

If the conditions noted above have been adhered to, then the decrease in value (net loss) reduces the IHT liability at a rate of 40%.

Dependant on the size of the holding, and the fluctuations in value, this could be a sizeable chunk of the IHT liability.

Fall in value relief

It is also possible to make a claim if an asset gifted during lifetime – as a potentially exempt transfer (PET) – has fallen in value. This is claimed when processing the IHT return in the first instance, rather than following a sale made after the initial tax return has been filed.

This particular claim is made under IHTA 1984 s.131 and assesses the open market value (OMV) at the date the gift was made compared to the OMV at the date of death.

Here at UHY, we are geared up to make the above submissions and claims, if you would like to discuss this further, please contact a member of our team today.