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Are you eligible to reclaim overpaid inheritance tax?

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This year has been difficult for many people and it has been even more difficult for those that have lost a family member.  For some, not only have they had to pay inheritance tax on the money left to them but market conditions bought on by the economic effects of the Corona virus have reduced the value received further.

It is not often that there are many benefits of selling investments at a loss.  However, if you inherited shares and have then subsequently sold them at a lower price than the price that you inherited them at, you may be able to claim tax relief on the loss.  You should be eligible as long as the shares are sold within 12 months of the date of death and the relief is claimed with four years of that 12-month period.  This can be done using form IHT35 for a reduction in estate values.

Given that the UK market is still substantially lower than where it started the year, there is a good chance that anyone who inherited UK shares or units in UK focused investment funds in the last year will currently be holding them at a lower value than at date of death.  This means that if you were to sell these funds, you could report the loss to HMRC and they will reimburse the overpaid inheritance tax to you.

It is important to note that the shares must be classified as “qualifying investments” which means that they must be listed on a major market (not including AIM) and must be sold by the personal representatives.  There must also be an overall loss on the investments sold, taking all sales into account.  Relief is only available on the gross value of all shares sold minus the value at date of death.

For those inheriting from large estates, the saving could be substantial.  Even at time of writing, (12/11/2020) after a significant rise in markets, the average fund in the UK All Companies sector is still down 11.43% year to date.  This means that if £100,000 of shares were inherited, you could claim a loss of £11,430 and this would result in a repayment of £4,572 in overpaid inheritance tax.

It is also important to note that once made, a claim for relief cannot be withdrawn.

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