Families inheriting portfolios are likely to have made big losses given the stock markets - Kyra Motley comments in the Telegraph & Wealth Briefing - Boodle Hatfield

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16 Aug 2022

Families inheriting portfolios are likely to have made big losses given the stock markets – Kyra Motley comments in the Telegraph & Wealth Briefing

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Boodle Hatfield has released new figures, showing that recent stock market volatility is likely to have caused significant investment losses. 1,640 taxpayers a year on average* have been forced to apply for refunds on inheritance tax after assets they inherited plunged in value.

Recent volatility in global stock markets means many investors are likely to have made significant losses in the past year and will be looking to claim relief on inheritance tax (IHT) paid.

Refunds on inheritance tax for investment losses, known as IHT share loss relief, allows people inheriting a share portfolio to claim relief on their IHT bill when they sell shares in the portfolio at a loss. To be eligible for the relief, the sale of shares has to be within 12 months of the date of death.

HMRC does not actively inform taxpayers if they are entitled to a refund on inheritance tax should the assets they inherit subsequently fall in value. Boodle Hatfield says people who inherit share portfolios need to regularly check the value of their portfolio as they may miss the opportunity to claim a refund on their IHT bill.

The relief applies to all ‘qualifying investments’. These are shares listed on a recognised stock exchange (excluding AIM), Government bonds and/or holdings in investment funds. The claim needs to be applied to all qualifying investments which are sold, rather than only those sold at a loss. This means people cannot simply count shares sold at a loss and claim back the inheritance tax paid.

Boodle Hatfield says that the number of claimants for IHT share loss relief is expected to grow in the coming year given the current volatility in stock markets. Many global indices have experienced major losses recently, including the S&P 500 which is down over 18% year-to-date.

Kyra Motley, Partner at Boodle Hatfield, says:A lot of people inheriting portfolios are likely to have made big losses this year given the plunge in stock markets. This means there is a high chance they have overpaid in inheritance tax.”

“It is therefore important that people administering estates start looking now at share loss relief and review portfolios before the 12 month period expires. HMRC does not allow people administering the estate to cherry pick shares sold at a loss for the relief to be claimed. Though it does allow them to retain shares which have not fallen in value and sell only those which have fallen.”

“People will have to think carefully however whether claiming the relief is right for them, considering they will have to sell their shares within a year of inheriting them. This means they could potentially lock in losses before share prices recover.”

*Average over five years to 5 April 2019, the latest year data is available

Read the full article in The Telegraph and Wealth Briefing published in August 2022. 

Only around 1,600 taxpayers a year make use of a rule that allows them to cut inheritance tax bills, new figures show, raising concerns that thousands more people could be paying too much tax. This year, many bereaved people will stand to inherit investments that have plummeted in value after turmoil in global stock markets.

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