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Inheritance Tax is calculated based on the value of an estate on the date of death. Very often the value of an asset will change after death, particularly equity based investments and property. If an estate is liable to Inheritance Tax and the value of shares or property reduces after death, it is possible to claim a tax refund on the loss in value but this is subject to strict time deadlines.
Capital Gains Tax
When a death occurs during a period when stock or property markets are depressed there is always a possibility that those assets will increase in value prior to a future sale. Whilst any such gains do not have any Inheritance Tax implications, they may result in the estate incurring a Capital Gains Tax liability if those gains exceed the available exemptions and reliefs. It is the sole responsibility of the executor to ensure that the relevant tax returns are prepared and filed with HMRC and that all tax is correctly calculated and paid.
It is possible to reduce or in some cases eliminate altogether a Capital Gains Tax liability provided that appropriate planning is carried out. Such planning may include spreading the sale of assets over a sustained period of time to maximise the available exemptions, or strategically transfer assets to estate beneficiaries prior to sale.
We recommend that all executors take taxation advice during the course of an estate administration to ensure that they comply with their obligations to HMRC, that all available tax reliefs are claimed and the correct amount of tax is paid. This will ensure executors fulfil their legal duty of maximising the value of the estate for the estate beneficiaries.
This article was written by Matthew Edwards, Partner in the Private Client Team at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of June 2020.