In today’s climate property values are falling and interest rates are rising meaning fewer properties are being sold. Throw in the added complication of mass delays in obtaining a Grant of Probate) there are a number of executors that will end up selling properties for less than the value reported to HMRC.
Why is this an issue?
It is important to remember that Inheritance Tax is charged based on the value of all the assets in someone’s estate at the date of their death. If an executor is forced to sell property at a loss because the value has decreased since the deceased’s date of death, it is possible that the estate might have paid more Inheritance Tax than it should, owing to the reduced house value.
What can be done about this?
If Inheritance Tax has been paid on the higher probate value, it may be possible to obtain an Inheritance Tax refund in certain circumstances. An application can be made to HMRC for relief on the loss on sale of land. This enables executors that find themselves in this situation to claim back some of the Inheritance Tax paid to reflect the loss caused by the changes in circumstances highlighted above.
How can I make a claim?
Any claim must be made for sales that occur within 4 years of the date of death. The loss claim can only be made by the ‘appropriate person’ (usually the executor of the estate) and therefore any asset transferred to a beneficiary which is then sold at a loss will not qualify for relief. A claim cannot be made unless the loss equates to more than £1,000 or 5% of the date of death valuation, whichever is lower.
HMRC will take into account all property sales by the estate within the 4 year period and will adjust the relief accordingly. There are different rules when further assets are purchased/sold in the 4th year.
The claim must be made within 7 years of the date of death, but the sale must have been made no longer than 4 years after the date of death.
What if the value of the property has gone up?
If the estate has not yet received Inheritance Tax clearance, HMRC might seek to argue that the sale proceed represented the true 'probate' value of the house and seek more IHT accordingly. If the value of the house has been accepted for IHT though, then capital gains become an issue on any growth. Capital Gains Tax mitigation is available in some circumstances and profesional advice should be sought if you are selling a property from an estate at a gain.
If you would like more information about claims for Inheritance Tax loss relief, please contact any member of our Wealth Management and Taxation team on 01494 521301.