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Beneficiaries under a deceased’s will are deemed to inherit the assets at market value as at the date of death. However, if a property is sold within four years of death at a lower price than the value used for the inheritance tax (IHT) calculation on the estate, that earlier IHT liability can be reduced by substituting the lower sale proceeds for the agreed value, therefore saving the estate IHT.

The relief is known as ‘loss on sale of land relief’ and if there is more than one property sold in the four years after death, the sale price of all those sold must be substituted for the values at death.

This 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; or 
• the sale is to the spouse/civil partner, children or remoter descendants, trustees or a person who had an interest in the property at any time between death and the date of sale.

Example:
Molly died in September 2012 owning a property valued for IHT purposes at £400,000. The property was eventually sold to a third party for £360,000 in 2014.

The loss on the probate value is: £400,000 – £360,000 = £(40,000).
Depending upon the value of the estate, up to £16,000 inheritance tax can be refunded.

Calculation: £40,000 x 40% = £16,000.