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Under s.191(1) IHTA84, loss on sale of land relief may be claimed when:

• the appropriate person (most commonly the executors),
• sells an interest in land included in the deceaseds estate,
• within four years of the death (which may be extended in the case of compulsory purchases)
• for a value different to its date of death value. (Only sales at a loss in the fourth year after death are treated as qualifying sales) (s197A IHTA84)

When this happens, the appropriate person may claim that the sale value should be substituted for the value on the death.

Where the only interest in land included in a deceaseds estate is the residence, the relief is normally straightforward.

Example

Terry died in August 2006. His house was valued for probate at 300,000. He had no other interests in land.

In December 2008, Terrys executors sold the house at arms length to a complete stranger for 250,000.

The executors claimed relief under s.191(1) IHTA84. The date of death value of the house for IHT purposes was reduced to 250,000.

But once the relief is claimed, the sale price of all interests in land sold within the 4-year period must be substituted for their date of death value. This includes those interests sold for more than the date of death value. The exception is property sold for a higher price in the fourth year.

There are situations where the sale price must be adjusted to take account of special circumstances.

The 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, (s191(2)IHTA84)
• where the only sale is of an interest whose value on death is covered by agricultural or business relief (or both) at 100%, as no tax was payable

A claim following a sale at less than the value at the date of death may not necessarily be advantageous because:

• there are various provisions for adjusting the sale price
• the relief involves substitution of sale value for the date of death value for all interests in land sold by the claimant in the same capacity (unless the sale is in the fourth year)

There is no provision for withdrawing a claim once it is made.

This is particularly relevant in cases involving undivided shares in property (see Section 18). This is because at the date of death a discount will normally be made from the arithmetical fraction of the entirety to reflect the disadvantages of shared ownership; however if the entirety interest is subsequently sold HMRC will take the sale value as being the appropriate arithmetical share of the sale proceeds (see para 12.16). Accordingly, the discounted date of death value agreed for say the deceaseds one-half share of a property may turn out to be less than one-half of the share of the gross proceeds of sale from the whole of the property.

Example

The deceased owned a half-share of Blackacre.

At the date of death Blackacre was valued at 200,000 for the whole, 90,000 for the deceaseds half share.

A year after the death, the whole property was sold for 190,000.

The sale value of the property for the purposes of s.191 is an arithmetic half share of the gross proceeds of sale, 95,000.

Any claim would therefore be disadvantageous as additional inheritance tax would in fact be payable as a result of the claim.

If the other half share is related property the approach is set out in para 12.41.

The taxpayer may try to make a claim following a sale at more than the date of death value even though it is clearly disadvantageous for IHT purposes. Where no tax is due on the sold land because:

• the chargeable estate is below the nil rate band, or
• the sold land is exempt from IHT, or
• the sold land attracts 100% relief (APR/BPR)

HMRC will deny the claim.

In denying the claim in these circumstances HMRC has not considered the value of the relevant interests in land at the date of death for Inheritance Tax purposes. Accordingly, the value has not been ascertained within the meaning of s.274 TCGA92 and for Capital Gains Tax. See also VOA CGT Manual Section 6.137.

The sale must be by the person liable to pay the tax, the appropriate person as defined in s.190(1) IHTA84 and that person must claim relief. In most cases the appropriate person will be the personal representative of the deceased or the trustees of a settlement.

But no relief can be given if, for example, a personal representative or trustee accounts for tax and then transfers the land to a beneficiary who then sells at a loss. The beneficiary cannot claim because they are not the appropriate person, and the personal representative or trustee cannot claim because they have not sold the land.

The claim must be made within four years of the end of the three-year period during which qualifying sales can be made (s.191(1A) IHTA84). Any claim made direct to the VOA should be forwarded to HMRC. The claimant should be informed of the action taken, but the caseworker should not comment on the claim.

The relief operates by the substitution of the sale value for the value on death in order to a

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