One of the greatest challenges executors face today is the fluctuating value of assets, which can result in an estate’s inheritance tax (IHT) value being higher than its actual market value.
IHT relief is available when assets are sold at a loss within twelve months of the demise of the testator (the legal term for the person who left a will). Note that the relevant date is twelve months after the decedent’s death, not after the grant of probate, a potent incentive to ensure that the administration of the estate is completed in a timely manner.
If the depreciated assets are publicly traded shares, a claim can be made on their sale but not on their transfer. Land-based claims must be filed within four years of the decedent’s date of death. The loss claim can only be made by the ‘appropriate person’ (in most cases, the executor), so assets transferred and then sold at a loss do not qualify for relief. A claim cannot be made unless the loss is at least 5% of the property’s value at the time of death, or £1,000.
Clearly, there is capacity for tax planning here, not only in terms of the timing of asset transfers but also in terms of whether assets should be sold or transferred and then sold. The optimal strategy depends on the tax situation of the beneficiaries and the estate.
Similarly, there is a respite available for inter-generational gifts. If an asset gifted prior to death has decreased in value and is subject to IHT, a claim can be made for the reduced value to be substituted in the estate’s valuation at the date of death. This relief is only available if the transferred asset remains in the ownership of the donor or the donor’s spouse or civil partner.
