Stock market crash saving families thousands in Inheritance Tax, experts reveal

HM Revenue & Customs (HMRC) made a record number of Inheritance Tax (IHT) refunds in the 2019/20 tax year as families sought to reclaim losses on the sale of inherited securities, it has been revealed.

The report comes after a turbulent year in the stock market which saw stocks and securities plummet in value.

The figures, obtained via a Freedom of Information request, suggest that annual IHT refunds increased by some 66 per cent, from 5,949 payments in 2018/19 to 9,864 payments in 2019/20.

And experts say the rise in refunds may have been down to a “little known” IHT rule.

Under IHT rules, tax is calculated on the value of assets above the IHT threshold – currently £325,000 or £650,000 if combined with a spouse or civil partner – on the date of death and paid within six months.

However, if “qualifying” shares or securities are sold at a loss within one year of the death of the individual, executors may potentially claim IHT relief. HMRC defines qualifying investments as “general shares or securities listed on a recognised stock exchange and/or holdings in authorised unit trusts”.

And with the stock market experiencing the biggest quarterly drop since the 2008 financial crash, there are potentially thousands more refunds waiting to be claimed. Before claiming, however, there are additional rules families need to be aware of.

Firstly, relief can only be claimed on overall losses, which means you need to include all qualifying investments sold, not just those sold at a loss. Selling costs cannot be included in the overall loss.

Likewise, only sales by the executor can be considered. This means that shares transferred by executors to beneficiaries cannot be included in the relief calculation, regardless of whether they have increased or decreased in value.

For help and advice with related matters, please get in touch with Jeffrey Cohen at Mackrell.Solicitors today.

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Jeffrey Cohen

Jeffrey Cohen

Senior Associate Solicitor, London, Head of Wealth and Succession Planning team at Mackrell.Solicitors
Jeffrey is Head of the Private Client department of Mackrell.Solicitors’ London office and joined the firm in May 2014. Jeffrey is a highly experienced private client lawyer and focuses on all aspects of private client law, wealth management, tax and trust law including estate and inheritance tax planning.