Beneficiaries under a deceased’s will are deemed to inherit the assets at their market value 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 descendant or trustees.
Example:
Molly died in September 2010 owning a property valued for IHT purposes at £400,000. The property was eventually sold for £360,000 in 2013.
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.
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