Tax writer Bloomsbury Professional
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IHT: Silver lining of a falling market

Mark McLaughlin, co-author of Ray & McLaughlin’s Practical IHT Planning, highlights some key reliefs available to use when calculating inheritance tax after a death.  

26th Jun 2020
Tax writer Bloomsbury Professional
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British detached houses

Sadly, tens of thousands of people in the UK have lost their lives during the Covid-19 pandemic and about 5% of those deaths will result in an inheritance tax (IHT) charge.

IHT is charged on the estate of a deceased person as if, immediately before their death, they had made a transfer of assets, valued on that day.

Loss on sale  

Where an asset was gifted within seven years before death, the IHT payable in relation to property may be reduced where the value of the gift has fallen between date of the gift and death. The IHT is calculated as if the lower value is substituted.


James gives an investment property to his daughter Sammy in October 2018, which was then worth £300,000. James died in May 2020, when the value of the property had fallen to £250,000. This value can be substituted for relief purposes.

However, if Sammy had sold the property in February 2020 for £275,000, that would represent the substituted value for IHT purposes (IHTA 1984, s 131(1)).

How to claim

A claim for this loss on sale relief must be made by a person liable to pay the IHT, no more than four years after the date of the donor’s death. Information on making the claim can be found at IHTM14627.

This relief can be useful but there are a number of exceptions, such as:

  • The relief does not affect the transferor’s cumulative total of transfers subject to IHT, which remains at its original figure for the purpose of taxing any later lifetime transfers and the estate on death, or the tax originally charged at lifetime rates on an immediately chargeable lifetime transfer;
  • Where a transfer was immediately chargeable to IHT at lifetime rates, the relief does not give rise to a repayment or remission of IHT that has already become payable during the transferor’s life.
  • When valuing property transferred, no account should be taken of related property (under IHTA 1984, s 161) or any other assets owned by the transferor or transferee; the values to be compared are the values, as at the dates of transfer and death or sale, of the transferred asset itself (see IHTM14626);
  • The relief does not apply if the transferred asset is a ‘wasting asset’ (i.e. an asset with a predictable useful life not exceeding fifty years immediately before the transfer) (IHTA 1984, s 132);

Post-death sales

IHT relief is available where the estate on death includes an interest in land or buildings which is sold by the person liable for the IHT (normally the personal representatives) within three years of the death at a genuinely lower value. That lower value is then the taxable value for IHT, subject to certain conditions.

If the personal representatives sells further interests in land within the fourth year after death, all the sales by that person are generally taken into account (IHTA 1984, s 197A), unless the sale value would exceed the value on death (or in certain other circumstances; see IHTM33074).

As with ‘loss on sale’ relief this post-death loss relief is potentially difficult and contains possible pitfalls. For example, if the land sold was held in joint ownership, care needs to be taken when making a loss relief claim if the value of the property was subject to a discount on death for IHT purposes, as the discount does not apply post-sale.

How to claim

A claim for the relief (form IHT38) must be made within four years of the end of the three-year period during which qualifying sales can be made (IHTA 1984, s 191(1A)). HMRC provides detailed guidance on these potentially complex provisions at IHTM33000–IHTM33182.

Sales of related property

Related property relief applies where, within three years after a person’s death, there is a sale of any property comprised in his estate immediately before his death which was valued for IHT purposes under the ‘related property’ rule (IHTA 1984, s 161).

If the relief applies, the sold property may be re-valued at the date of death without taking into account the related property rules or property passing under another title, with which it was originally valued.

As with the other reliefs, there are various conditions to be satisfied. For example, the vendors must be the persons in whom the property is vested or the deceased’s personal representatives; the sale must be at arm’s length for a freely negotiated price, and must not be in conjunction with other related property sales; and the vendor and the purchaser must not be connected.

A claim can then be made that the property at the death is valued freed from the related etc property provisions (IHTA 1984, s 176(2)).

Time for a review

There is no telling how long the current economic slump is likely to continue. However, it would seem an appropriate time to review the affairs of clients with possible IHT exposure on their estates, including those who have tragically died from Covid-19.


Replies (1)

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Hallerud at Easter
27th Jun 2020 13:24


Have you thought about what market values actually were whilst everything was in lockdown, effectively there were no actual physical viewings, conveyancing was effectively suspended, there was no functioning market in property, so how ought values be considered under these market parameters?

Interested to hear your thoughts (appreciate it is likely more a question for surveyors)

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