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Inheritance tax relief on falling property prices

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When a property (or land) is sold within four years of the date of death for less than its date of death value, a relief from inheritance tax may be available. The relief basically allows the sale price to be substituted for the date of death value.

Inheriting-house

If the relief is claimed, the sale price of all properties sold within the four year period must be substituted for their date of death value. Significantly, this includes those properties sold for more than the date of death value.

The relief is not available where the:

  • Difference between the date of death value and the sale price is less than £1,000 or 5% of the value on death whichever is the lower
  • Sale is a non-qualifying sale, for example to a beneficiary or a relative of a beneficiary
  • Only sale is of a property whose value on death is covered by agricultural relief or business relief from inheritance tax, or both, at 100%
  • No inheritance tax is payable on the estate

The claim for the relief must be made by the ‘appropriate person’. This is the person liable for the inheritance tax attributable to the value of the property, the person who either paid the tax or has an obligation to pay it. Where there is more than one such person who is liable this will be the person who is paying the tax.

In most cases the appropriate person will be the personal representative of the deceased. A beneficiary of the property who is bearing the tax can also be an appropriate person. For example in a Will ‘I give the property known as [address] to [name of legatee] subject to tax.’ No relief can be given if a personal representative accounts for tax and then transfers the property to a beneficiary who then sells at a loss. The beneficiary cannot claim because they are not the appropriate person and the personal representative cannot claim because they have not sold the property.

The claim should be made in writing and signed by the appropriate person. It must specify the capacity in which the person is making the claim, the details of the property sold, the date of sale, the parties to the sale and the sale price. HMRC’s form IHT38 harnesses all this information.

The ramifications of a claim should be carefully considered, with the benefit of advice where necessary, as the taxpayer cannot withdraw a claim once it is made.

If you are affected or need further information on inheritance tax, please contact Rod Smith

020 3750 9366     Email usrod.smith@roydswithyking.com

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