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A Strategic Opportunity for Executors
When managing an estate, personal representatives (PRs) often need to make decisions about the assets left behind—particularly investments like shares. If the deceased held quoted shares that have fallen in value since the date of death, there may be an opportunity to reduce inheritance tax (IHT) by selling them within a specific timeframe. This strategy, while effective, comes with key conditions and some careful balancing between tax benefits.
Why Sell Shares Below Probate Value?
If quoted shares are sold at a lower value than the one recorded for probate purposes, the estate may benefit from a reduced IHT bill. The principle is simple: if shares are sold for less than their original value, the lower sale price can replace the higher probate value for IHT calculations.
This means less tax is due—potentially saving thousands of pounds for the estate.
The 12-Month Rule: Timing Is Everything
For this relief to apply, the shares must be:
- Quoted on a recognised stock exchange (excluding AIM shares) and
- Sold within 12 months of the date of death, and
- Sold by the correct party, typically the personal representatives managing the estate.
Miss that 12-month window and the opportunity to reduce the IHT bill is lost.
Who Can Sell the Shares?
Although PRs are usually responsible for making the sales, what matters is that the person liable for paying the inheritance tax on those shares carries out the transaction. In most cases, that’s still the executor or administrator of the estate. However, in specific situations, such as trusts, others might be involved.
If beneficiaries want to keep the shares but the PRs are looking to claim the relief, one practical option is for the beneficiaries to buy the shares directly from the estate. This allows the sale to be recorded as a loss while still keeping the assets within the family.
What About Capital Gains Tax?
There’s a catch. If the IHT value is reduced because of the lower sale price, that same lower figure becomes the acquisition cost for Capital Gains Tax (CGT) purposes. So, if the new owner later sells the shares at a profit, they may face a larger CGT bill than they would have had if the shares were valued higher initially.
However, for most estates, the IHT savings will outweigh any future CGT liabilities—especially if the estate is taxable at 40%.
If the estate is exempt from IHT (e.g., everything is left to a spouse or charity), the value of this relief becomes less useful, and the potential CGT issues may take priority.
Can You Pick and Choose Which Shares to Sell?
No. You can’t cherry-pick only the loss-making shares to claim relief. All sales of qualifying shares within the 12-month period are grouped to calculate a net loss or gain.
If some shares are sold at a gain and others at a loss, those gains will reduce or cancel out the relief from the losses. So, to make the most of the relief, PRs might hold off on selling gain-making shares until after the 12-month deadline.
Example: How It Works: Let’s say an estate includes four quoted shareholdings, valued for probate at:
- Share A: £10,000
- Share B: £16,000
- Share C: £20,000
- Share D: £25,000
Within 12 months of the death:
- Share A is sold for £7,000 (loss of £3,000)
- Share B for £10,000 (loss of £6,000)
- Share C for £12,000 (loss of £8,000)
- Share D for £40,000 (gain of £15,000)
Total losses: £17,000
Gain on D: £15,000
Net relief available: £2,000
Even though there were significant individual losses, the gain from Share D has reduced the overall benefit of the relief. In this case, if the PRs had delayed the sale of Share D until after the 12-month window, they might have preserved the full £17,000 relief.
Things to Think About
- Talk to beneficiaries early to decide whether certain assets should be kept or sold.
- Track share values closely—timing is crucial to maximising relief.
- Review the estate’s IHT position—if it’s exempt, the CGT implications may be more important.
- Understand the broader impact—saving on IHT now could increase CGT later.
Selling quoted shares at a loss within a year of death can be a smart move to reduce inheritance tax. But it’s not always straightforward. Executors need to think about the whole estate, the interplay with capital gains tax, and whether the estate actually benefits from IHT savings in the first place.
Careful planning, communication with beneficiaries, and timing of sales are essential to getting the best outcome.
Need Help Managing an Estate or Inheritance Tax?
At Tax Accountant, we help executors and families navigate the tax side of probate. Whether you’re dealing with share portfolios, IHT claims, or CGT risks, we’ll make sure you stay compliant and tax-efficient. Get in touch today to make the most of the reliefs available to your estate.