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Form IHT35 for Inheritance Tax, Claiming for Relief — Loss on Sale of Shares

Understanding Form IHT35 for Inheritance Tax

Form IHT35 is an essential tool for executors or administrators of estates in the UK, providing a means to claim relief on Inheritance Tax (IHT) for losses incurred from the sale of shares or securities that were part of the deceased's estate. This guide will delve into the intricacies of Form IHT35, its eligibility criteria, and the strategic considerations for optimizing tax relief.


Form IHT35 for Inheritance Tax, Claiming for Relief — Loss on Sale of Shares


Overview of Form IHT35

Introduced as part of the 1973 Finance Act, the relief for loss on sale of shares allows for the adjustment of an estate's IHT liability based on the sale price of shares, compared to their value at the date of death. If shares from the deceased’s estate are sold at a loss within 12 months following the death, Form IHT35 enables executors to claim a refund on the overpaid IHT. The form was updated in November 2022 to include detailed information about investments that do not qualify for relief, ensuring clarity for claimants​​.


Qualifying Investments

The relief applies to "qualifying investments," which primarily include shares or securities listed on a recognised stock exchange, and holdings in authorised unit trusts at the time of the deceased’s death. It is crucial to report all sales of such investments within the 12-month window, regardless of whether they resulted in a gain or loss. Investments not meeting HMRC's criteria, such as AIM listed companies, are excluded from this relief​​.


Eligibility and Submission

Eligibility for the relief hinges on the sale of shares within 12 months from the date of death. The IHT35 form, detailing all qualifying investment transactions, must be submitted within four years from the end of this 12-month period. This timeframe allows executors to accurately assess and report the financial outcome of the estate’s investment portfolio.


Strategic Considerations

When contemplating the sale of shares for IHT relief, several strategic factors come into play:

  • Net Loss Calculation: The relief is calculated on the net loss, where any gains from the sale of investments within the same period are offset against losses. This calculation can significantly influence the relief amount and requires careful planning to maximize the tax benefit​​.

  • Anti-Avoidance Rules: Rules are in place to prevent the manipulation of this relief. For instance, selling and then repurchasing the same shares within a two-month window is prohibited, ensuring the integrity of the tax relief process.

  • Capital Gains Tax (CGT) Implications: The recalculated share values for IHT relief purposes also affect the CGT base cost, potentially impacting the estate’s CGT liability. This dual effect underscores the need for holistic tax planning.

  • Residence Nil Rate Band (RNRB) Impact: The revised estate value, post-share loss relief claim, may also influence the eligibility for the RNRB, offering an additional layer of tax efficiency.


Professional Guidance

Given the complexity of claiming IHT relief for loss on sale of shares, seeking professional advice is advisable. Tax professionals can provide tailored strategies to navigate the nuances of Form IHT35, ensuring compliance and optimizing tax benefits​​.


In summary, Form IHT35 serves as a crucial mechanism for mitigating IHT liabilities through strategic estate management. By understanding and leveraging this form, executors can significantly impact the financial outcomes of estates, underscoring the importance of informed decision-making and professional consultation.



Practical Steps for Utilizing Form IHT35: Claiming Relief for Loss on Sale of Shares

Form IHT35 plays a pivotal role in the post-mortem management of an estate's investment assets, offering a path to reclaim overpaid inheritance tax (IHT) when shares are sold at a loss. This part of the guide focuses on the practical application of Form IHT35, including preparation, submission, and the administrative nuances that executors and beneficiaries need to be aware of to navigate this process successfully.


Preparation for Claiming Relief


Documentation and Record-Keeping: The foundation of a successful IHT35 claim lies in meticulous record-keeping. Executors need to compile detailed records of all qualifying investments sold within 12 months of death, including sale proceeds and the original market value at the date of death. This comprehensive approach ensures all potential relief is captured​​.


Assessing Market Conditions: The timing of share sales can significantly impact the relief claim. Executors should monitor market conditions closely, aiming to sell shares when it is most beneficial, considering both the estate's tax position and the overarching financial planning objectives of the beneficiaries.


Submission Process


Completing Form IHT35: The form requires detailed information about the sold investments, including their values at the time of the deceased's death and their sale prices. Accuracy is paramount to avoid delays or rejections of the claim.

Timely Submission: Executors have up to four years from the end of the 12-month period following the death to submit Form IHT35. However, early preparation and submission are advisable to resolve any issues well within the deadline​​.


After Submission


HMRC Review: Once submitted, HMRC will review the claim, which may involve queries or requests for further information. Executors should be prepared to provide additional documentation or clarification as needed.

Adjustment of IHT Liability: If the claim is approved, HMRC will adjust the estate's IHT liability accordingly. This adjustment can lead to a refund of overpaid tax, which will be issued to the estate. The process underscores the financial implications of timely and accurate submissions​​.


Key Considerations


  • Impact on Beneficiaries: The outcome of the IHT35 claim can affect the overall value of the estate and, consequently, the inheritance received by beneficiaries. Transparent communication throughout the process is crucial to manage expectations​​.

  • Potential for Reevaluation: In certain cases, HMRC may reevaluate the estate’s IHT liability based on the information provided in Form IHT35. Executors should be prepared for this possibility and understand its implications.


The effective use of Form IHT35 for claiming relief on the loss on sale of shares is a strategic component of estate administration. By adhering to the guidelines for preparation, submission, and post-submission processes, executors can navigate this complex landscape with confidence. Professional advice can further enhance the likelihood of a successful claim, optimizing the financial outcome for the estate and its beneficiaries.

In managing the intricacies of IHT relief through Form IHT35, executors contribute significantly to the efficient resolution of the deceased's financial affairs, ensuring compliance with tax regulations while maximizing the estate's value for its beneficiaries.



How to Fill Form IHT35: A Step-by-Step Guide

Filling out Form IHT35 is crucial for claiming relief on shares or securities sold at a loss from the deceased’s estate within 12 months of death. This detailed guide aims to help you navigate through the form seamlessly, ensuring you accurately claim the relief you're entitled to.


Step 1: Understanding Eligibility

Before you begin, ensure the shares or securities sold qualify for relief. This includes those listed on a recognized stock exchange, UK Government stock (gilts), or unit trusts. Sales must have occurred within 12 months post-death, and claims must be submitted within four years from this period's end.


Step 2: Filling in Basic Information

Start by providing the deceased's full name and the date of death, followed by the Inheritance Tax reference number. This basic information is critical for HMRC to identify the estate correctly.


Step 3: Identifying the Claimant

Clearly state the name, address, and contact information of the person HMRC should contact regarding this claim. This ensures any queries are directed appropriately.


Step 4: Detailing the Investments

In the section asking for details of the qualifying investments, you need to list every sale of qualifying investments within the 12-month period after death, not just those at a loss. Include the full description of the holding, the number of shares or amount of stock, their value at the date of death, and their sale price.


Step 5: Addressing Purchases

If any qualifying investments were purchased between the date of death and two months after the last sale, detail these in the designated section. This will affect the relief calculation, as the relief is limited by the net cost of these purchases.


Step 6: Supplementary Questions

Answer questions about exchanges, capital payments, calls, changes in holdings, and options to buy or sell. These affect the relief calculation and require detailed entries if applicable.


Step 7: Repayment Authority

If a repayment is due from HMRC, provide bank account details for the direct transfer. This facilitates a smoother process in receiving any overpaid Inheritance Tax.


Step 8: Declaration

The declaration section is crucial. All appropriate persons, such as executors or trustees, must sign, declaring the information provided is true and complete. Choose between two declarations based on whether further sales or purchases are intended within the specified periods.


Suggested Answers for Each Section

  • For sales and purchases of shares, calculate the total loss by subtracting the gross proceeds from the value at the date of death.

  • If purchases were made, detail these and calculate the restriction on the loss.

  • When answering supplementary questions, detail any specific transactions that occurred, like exchanges of investments or receipt of capital payments.


Final Steps

Once completed, review the form to ensure all entries are accurate and complete. Remember, all appropriate persons must sign the form before submission to the address provided by HMRC for Inheritance Tax.


By carefully following these steps and accurately completing each section, you can ensure your claim for relief on the loss of sale of shares is well-documented and submitted in compliance with HMRC's requirements. This detailed approach helps maximize the potential relief and reflects the careful management of the deceased’s estate’s financial matters.


Maximizing Estate Value: Advanced Strategies Using Form IHT35

The strategic application of Form IHT35 not only facilitates the adjustment of an estate’s inheritance tax (IHT) liability in light of losses on share sales but also opens avenues for financial planning and optimization. This final segment delves into advanced considerations and strategies that can maximize estate value and ensure beneficiaries receive the maximum possible inheritance.


Strategic Sales and Market Timing


Market Fluctuations: Executors should closely monitor market trends and economic indicators to time the sale of shares strategically. The goal is to realize losses that are genuinely reflective of market conditions, rather than forced by the necessity of liquidation​​.

Selective Sale of Assets: Deciding which shares to sell involves a nuanced understanding of the portfolio's overall performance and its potential future trajectory. Executors may opt to retain assets with a strong recovery outlook, selling only those with bleak prospects.


Coordination with Other Tax Reliefs and Exemptions


Interaction with CGT: Executors must consider the implications of share sales on capital gains tax (CGT). The recalculated base cost for CGT purposes post-IHT relief claim could affect the estate’s CGT liability. Strategic planning can minimize this impact, potentially leveraging losses to offset future gains.

Utilization of Residence Nil Rate Band (RNRB): The adjustment of the estate’s value following a successful IHT35 claim may enhance eligibility for the RNRB, providing further tax efficiencies. Understanding the interplay between these reliefs can significantly benefit the estate​​.


Leveraging Professional Advice


Tailored Financial Planning: The complexity of tax laws surrounding IHT, CGT, and other relevant areas necessitates professional advice. Tax advisors can offer tailored strategies that consider the estate's unique circumstances, beneficiary expectations, and long-term financial objectives.

Estate Planning Integration: The strategies for employing Form IHT35 should be integrated into the broader estate planning process. This holistic approach ensures that all tax reliefs and exemptions are maximized, benefiting the estate and its beneficiaries comprehensively.


Post-Claim Management


Communication with Beneficiaries: Keeping beneficiaries informed about the strategies employed and the outcomes of tax relief claims is crucial. Transparent communication ensures that beneficiaries understand the efforts made to maximize their inheritance and the rationale behind specific decisions​​.

Ongoing Review and Adjustment: The financial landscape and tax legislation are subject to change. Regular reviews of the estate’s strategy in light of new information or changes in law can uncover additional opportunities for optimization or necessitate adjustments to the approach​​.


The judicious use of Form IHT35 represents a critical element in the sophisticated management of estate finances, offering a mechanism to adjust IHT liabilities in response to investment losses. However, its true value is unlocked when integrated into a comprehensive estate planning and financial strategy that seeks to optimize tax reliefs, navigate legal complexities, and ultimately enhance the value passed on to beneficiaries.

By embracing these advanced strategies and seeking professional guidance, executors can navigate the complexities of estate administration with confidence, ensuring that the financial legacy left behind is as impactful as possible. The ultimate goal is to ensure that the estate is managed not just with a view to meeting legal obligations but in a way that aligns with the deceased’s wishes and the beneficiaries' best interests, maximizing the value transmitted across generations.


How an Inheritance Tax Accountant Can Help You With Form IHT35


How an Inheritance Tax Accountant Can Help You With Form IHT35

Dealing with inheritance tax (IHT) in the UK, especially when it involves claiming relief for losses on the sale of shares, can be a daunting task for individuals who are already coping with the loss of a loved one. This is where the expertise of an inheritance tax accountant becomes invaluable. An IHT accountant specializes in navigating the complex landscape of estate taxes and can provide essential guidance on how to properly utilize Form IHT35 to claim relief. Here’s a closer look at how an inheritance tax accountant can assist you throughout this intricate process.


Understanding Form IHT35

Form IHT35 allows executors or administrators of an estate to claim relief when shares or securities from the deceased's estate are sold at a loss within 12 months of death. This relief can significantly reduce the overall IHT liability. However, the form itself and the process of claiming this relief can be complex and require a detailed understanding of the applicable laws and regulations. An inheritance tax accountant brings a comprehensive knowledge of the UK's tax system, ensuring that all relevant losses are accurately reported and the maximum possible relief is claimed.


Navigating the Eligibility Criteria

One of the primary roles of an IHT accountant is to help determine the eligibility of the estate for claiming relief on Form IHT35. They will assess whether the shares sold meet the criteria as qualifying investments and ensure that the sale falls within the specified 12-month period post-death. Additionally, they will confirm that the claim is submitted within the four-year deadline, thus ensuring compliance with HMRC’s guidelines.


Maximizing the Claim

An experienced IHT accountant will not only ensure that your claim complies with HMRC’s requirements but will also advise on strategies to maximize the relief claim. This includes a detailed review of the estate's portfolio to identify all eligible sales of shares and securities, calculating the net loss accurately, and considering the impact of any purchases made within the relevant period. Their expertise allows them to navigate the complexities of tax law to benefit the estate.


Addressing Complications

The sale of shares and the calculation of losses can sometimes involve complex situations, such as dealing with bonus or rights issues, changes in holdings, or the repurchase of shares within a specified period. An IHT accountant can address these complexities, ensuring that all aspects of the sales and their impact on the IHT relief claim are correctly handled.


Compliance and Documentation

Ensuring that your claim is compliant with current tax laws and regulations is crucial. An IHT accountant will manage all necessary documentation and record-keeping, providing detailed and accurate information to support the claim. This meticulous attention to detail reduces the risk of errors and potential queries from HMRC, facilitating a smoother processing of the claim.


Liaison with HMRC

Handling communications with HMRC can be challenging, especially during a time of bereavement. An inheritance tax accountant acts as an intermediary between you and HMRC, managing all correspondence, answering queries, and providing additional information as required. This can alleviate the stress and burden from the executors or administrators of the estate.


Strategic Planning and Advice

Beyond the immediate task of claiming relief on Form IHT35, an inheritance tax accountant can offer strategic planning advice to minimize future IHT liabilities. This may include recommendations on estate planning, gifting strategies, and the use of trusts or other vehicles to manage the estate's tax exposure effectively.


Ongoing Support

The role of an IHT accountant doesn’t end with the submission of Form IHT35. They provide ongoing support, advising on any further tax implications that may arise from the sale of shares, such as capital gains tax considerations, and ensuring that the estate’s overall tax position is optimized.


Peace of Mind

Perhaps most importantly, engaging an inheritance tax accountant provides peace of mind. Knowing that a professional is managing the complexities of the IHT relief claim allows you to focus on other aspects of estate administration and coping with the loss of a loved one.

In summary, an inheritance tax accountant is an indispensable resource when dealing with Form IHT35 and the broader complexities of inheritance tax in the UK. Their expertise not only ensures compliance and maximizes relief claims but also provides strategic advice to manage the estate’s tax liabilities effectively. With their support, you can navigate the challenges of the IHT process with confidence, ensuring that the estate is managed in the most tax-efficient manner possible.



FAQs


Q: What if I sell the shares at a loss more than 12 months after the deceased's death?

A: Relief on the loss of sale of shares can only be claimed if the sale occurs within 12 months of the date of death. Sales made beyond this period are not eligible for relief under Form IHT35.


Q: Can I claim relief if the shares were not originally listed on a recognised stock exchange but became listed before the sale?

A: No, the shares or securities must have been listed on a recognised stock exchange at the date of death to qualify for relief.


Q: Are AIM-listed shares eligible for relief under Form IHT35?

A: No, holdings in AIM listed companies do not meet HMRC’s criteria for qualifying investments for the purposes of claiming relief on Form IHT35.


Q: What happens if I make a mistake on Form IHT35 after submitting it?

A: If you discover an error after submission, you should contact HMRC as soon as possible to correct the mistake. It’s important to provide accurate and complete information to avoid potential delays in processing your claim.


Q: Can I claim relief for losses on shares sold at a loss that were gifted to a beneficiary?

A: Yes, if the shares were given to a beneficiary to satisfy a pecuniary legacy with consent, this counts as a sale and can be included in your claim for relief.


Q: How is the relief calculated if I also made purchases of qualifying investments within the specified period?

A: The relief is restricted by the net cost of any purchases. The formula to calculate the restriction involves multiplying the net loss by the sum paid for purchases, divided by the gross proceeds of sales.


Q: What if there were changes in the holding of the sold qualifying investments within 12 months after death?

A: You must provide details of any changes in the holding, such as bonus or rights issues, as these could affect your claim for relief.


Q: Is there a deadline for submitting Form IHT35?

A: Yes, the form must be submitted within four years from the end of the 12-month period following the deceased's death in which the sales took place.


Q: Can relief be claimed for sales of shares that resulted in a gain?

A: Yes, all sales of qualifying investments within 12 months after death must be reported, not just those that resulted in a loss. However, relief is only available for losses.


Q: What documentation is required to support the claim made on Form IHT35?

A: You should retain and, if requested, provide sales receipts, broker statements, or any other documentation that evidences the sale of shares and securities, their sale price, and the date of sale.


Q: How does claiming relief on Form IHT35 affect the estate's Capital Gains Tax?

A: The market value of any investment for capital gains purposes is adjusted to the value at the date of death after relief is granted, which could affect the estate’s Capital Gains Tax liability.


Q: Can I file Form IHT35 electronically?

A: As of the last update, Form IHT35 must be printed and mailed to HMRC. Always check the current HMRC guidelines for any changes to submission methods.


Q: What if the estate has not yet been distributed at the time of sale?

A: You can still claim relief if the qualifying investments are sold before the estate is distributed. However, if distributions have been made, ensure any implications are considered.


Q: Are there any penalties for late submission of Form IHT35?

A: The key requirement is to submit within the four-year deadline. While there aren't specific penalties for late submission within this period, missing the deadline may disqualify the claim for relief.


Q: Can a beneficiary claim the relief if they sold the shares after inheriting them?

A: No, only the executors or administrators of the estate can claim this relief for sales made within 12 months of the death.


Q: What happens to the relief if the estate's IHT liability is reassessed after claiming?

A: Any adjustments to the estate's IHT liability after relief has been claimed could result in changes to the amount of relief granted. HMRC will communicate any such adjustments.


Q: Can the relief be revoked by HMRC?

A: Yes, if HMRC finds discrepancies or if the relief was granted based on provisional information that changes, they may review and adjust the relief.


Q: What should I do if I sold shares at a loss but already paid the IHT?

A: If you've already paid the IHT, you can still submit Form IHT35. If the claim is approved, HMRC will refund the overpaid amount directly to the estate's bank account, provided you've included accurate bank details for the repayment authority on Form IHT35.


Q: How will I know if my claim on Form IHT35 has been accepted by HMRC?

A: HMRC will notify the contact person listed on the form about the acceptance of the claim, any adjustments required, or if additional information is needed to process the claim.


Q: Are there specific conditions under which provisional relief is granted?

A: Yes, provisional relief may be claimed within 12 months of the date of death, but it's subject to review by HMRC. This review might adjust the relief based on further sales or acquisitions of qualifying investments.


Q: What constitutes a 'capital payment' for the purposes of Form IHT35?

A: A capital payment includes any money or money's worth that is not income for Income Tax purposes and proceeds from the sale of any 'rights' associated with the qualifying investments. It does not include the sale proceeds of the qualifying investments themselves.


Q: If an option to buy or sell qualifying investments was exercised, how does it affect my claim?

A: If an option was exercised, the date the option was granted, rather than the settlement date, should be used as the date of sale or purchase for the purposes of the claim. This detail is crucial for accurately calculating relief.




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