Stock market fall could save families thousands in Inheritance Tax

New data has revealed that 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.

The revelation follows a turbulent year for the stock market which saw many stocks and securities fall in value.

The figures, obtained by a wealth management firm 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.

The rise in refunds may be the result of a little known IHT rule, where 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”.

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 matters relating to Inheritance Tax, please get in touch with our expert team.