By India Carruthers, Trainee Solicitor
When does this relief apply?
There may be circumstances whereby someone gifts an asset other than cash (eg a house or shares) during their lifetime and this asset falls in value between the date of the gift and the date of death of the donor.
If there is inheritance tax (IHT) due by the person who received the gift, then ‘fall in value relief’ may be available to reduce the tax charge.
The relief applies when IHT is payable as a result of the transferor’s death because the gift was made within seven years of the date of death and the value of the asset has fallen between the date of the gift and the date of death. It allows you to use the lower value of the asset for the purposes of calculating the tax payable as a result.
What property qualifies for the relief?
A claim for the relief can be made in relation to property that remains under the ownership of the transferee (or their spouse or civil partner) and also property which has been sold by the transferee (or their spouse or civil partner).
If the claim related to a gifted asset which has been sold, the sale price must have been the best price that the seller could reasonably have received. This is called a ‘qualifying sale’.
The relief cannot be applied to a ‘wasting asset’, ie moveable property with a useful life of less than fifty years at the date of transfer. This includes any plant and machinery.
In the case of various assets being transferred together as part of a portfolio, a claim can be made on the loss in value of any individual asset, if the criteria are met. The relief available is not affected if the value of any of the other assets increases.
How to claim
The person liable to pay the tax must submit a written claim within four years of the date of the gift-giver’s death. The claim must:
- identify the transfer and the gifted asset;
- confirm that the transferee (or their spouse or civil partner) still holds the asset or that it was sold in a qualifying sale;
- provide any details on whether there have been changes to the asset (or confirm there have been none); and
- be signed by one or more of the persons liable to pay the tax.
There is no specific form for the claim and no provision for a late claim.
Interaction with reduced rate for IHT
A final point to note is that where more than 10% of an estate is left to charity, it benefits from a reduction in IHT (36% as opposed to 40%). If an estate initially fails to meet this percentage but fall in value relief is claimed on qualifying sales during the relevant time frame after the death, the calculations can be revisited, with the result being that the estate may thereafter meet the 10% criterion.