Inheritance Tax – A silver lining?

Photo credit: Christian Vasile

It may be possible to reclaim some of the inheritance tax (IHT) paid on Estates if the stock market performs badly.

IHT on shares is calculated on their value on the day the owner dies, but it may take months for the Estate to complete probate and the shares to be inherited.

If the share price falls before the inheritor has taken ownership, the estate may have overpaid IHT.

In years when the stock market has performed poorly, this is more likely to occur. For example, the FTSE 100 index is down 10.4% since August, from a high of 7,777 to 6,968.

A portfolio of shares valued on August 27 at £100,000 would now be worth £89,600 — a difference of £10,400. This could be eligible for a refund of 40% IHT — £4,160.

In the 2016-17 tax year, 2,014 estates reclaimed IHT on shares. In the previous tax year, it was 1,211 estates and in 2014-15 just 689.

In 2008-9, in the midst of the financial crisis, 5,329 estates reclaimed the tax on shares they had inherited. In that tax year the UK stock market fell by 30%.

IHT receipts are set to hit a record after £3.7bn was paid in the first eight months of the current tax year.

However, any IHT refund can only be claimed when the shares are sold, so careful planning is required.

Those looking to take advantage need to look at all the holdings in an Estate — if some of the shares in an inherited portfolio have increased in value, these gains will be offset against the losses of any that have fallen.

It may be best to sell only those shares that have fallen in value in the 12 months after death, which is the limit on the period for which you can reclaim the tax.

Executors can also reclaim IHT if the value of a house has fallen. In the last tax year, 2,177 estates reclaimed IHT paid on houses that were sold for less than their valuation on the date that the owner died.

In the 2008-9 tax year 4,958 estates made such a claim, rising to 5,314 in 2009-10. Houses are eligible for reclaims for four years.

If you need guidance, it is worth seeking advice especially those still administering the estates of those who dies leaving property (including shares) in the last 12 months.

For more information please do not hesitate to contact the team at Ward Williams Financial Services Ltd on 01932 830664 or by email on wwfs@wardwilliams.co.uk.

IHT, Tax

About the author

Cliff, Director of Ward Williams Financial Services Ltd, has nearly 30 years experience in the Financial Services Industry with a variety of institutions including a major Private bank. He established WWFS in 2003 and is qualified to Diploma level. Cliff has advised numerous clients on all aspects of Financial Planning including Wills and Estate Planning.  He has a deep understanding of the need to plan wisely in this ever-changing world. His interest and enjoyment, however, still comes from meeting with clients and helping them put the financial side of their lives in better order. Cliff has lived in the Weybridge area for over 25 years and is married with two grown-up children. A keen sportsman, he loves playing cricket, hockey and golf – but these days probably spends more time spectating!