If executors sell quoted shares within 12 months of a death, or a house or other real property within three years, for less than the value used for Inheritance Tax, they can claim to replace the probate value with the sale price and reclaim the tax on the difference. Shares are claimed on form IHT35 and property on form IHT38, and every qualifying sale in the period must go into the claim, including any made at a profit.

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Why can executors reclaim tax after a fall in value?

Inheritance Tax is charged on the open market value of each asset at the moment of death, under section 160 of the Inheritance Tax Act 1984. If values fall before the executors can sell, the estate would otherwise pay tax on value it never received. Sections 178 to 189 cover quoted shares and similar investments, and sections 190 to 198 cover interests in real property such as houses, flats, farms and commercial buildings.

Both reliefs can only be claimed by the “appropriate person”. That is the person liable for the tax on the asset or, where several are liable, the one who actually pays it. In practice this is normally the executors or administrators, or the trustees where the asset was in a trust. HMRC’s guidance at IHTM33050 adds two important limits:

  • if no tax is payable on the asset there is nobody liable, so no claim can be made (the Stonor v IRC decision);
  • if the executors transfer the asset to a beneficiary who then sells it at a loss, neither of them can claim, because the beneficiary is not the appropriate person and the executors did not sell.

The practical rule is simple: if a sale at a loss is likely, the executors should sell in their own names before handing anything over.

Which shares qualify, and what are the conditions?

The share relief applies to “qualifying investments”. IHTM34131 lists shares or securities that were quoted at the date of death (including those listed on a recognised foreign stock exchange), holdings in authorised unit trusts, open ended investment companies and shares in common investment funds. Unlisted shares do not qualify, and HMRC confirms at IHTM34011 that this includes shares traded on AIM.

The conditions are:

  1. The investments must be sold within the 12 months immediately following the death (section 179(1)).
  2. The appropriate person must make the sale and the claim.
  3. There must be an overall loss. All qualifying investments sold in that 12 months are added together, not just the ones that fell, and relief is given only if the total gross proceeds are less than their total value at death (IHTM34171).

The sale value is the gross price, or the best price that could reasonably have been obtained if that is higher. Selling expenses are ignored (IHTM34176). The redemption of a stock or bond is not treated as a sale (IHTM34151). Two special rules help where shares cannot be sold: shares cancelled without replacement within 12 months are treated as sold for £1 (section 186A), and shares whose quotation is still suspended 12 months after death are treated as sold at their value at that point if it is below the death value (section 186B).

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What happens if the executors reinvest the proceeds?

Under section 180, if the personal representatives buy qualifying investments in the same capacity at any time from the date of death until two months after the last sale in the claim, the loss is reduced by the fraction purchases divided by sale proceeds (IHTM34213).

HMRC’s own example at IHTM34212: shares worth £12,000 at death are sold for £9,000, a loss of £3,000. Within two months of the sale the executor buys other quoted shares for £5,000. The loss is reduced by £5,000 divided by £9,000 times £3,000, which is £1,667, leaving relief on £1,333. If purchases equal or exceed the sale proceeds, no relief is due at all.

How does the relief work for a house or other property?

For real property the main window is three years from death (section 191). Section 197A extends it into the fourth year, but only for sales at a loss: a fourth year sale at a profit is simply left out (IHTM33074). The rules are stricter than for shares in several ways.

  • All sales count. Once a claim is made, the sale price replaces the death value for every interest sold by the claimant in the same capacity during the period, including any sold for more than probate value (IHTM33090).
  • Small differences are ignored. A sale is excluded if the difference between the death value and the sale value is less than £1,000 or 5% of the death value, whichever is lower (section 191(2)).
  • Sales to family are excluded. Under section 191(3) a sale does not qualify if the buyer is a person who has been beneficially entitled to the property since the death, or that person’s spouse, civil partner, child or remoter descendant, or trustees of a trust in which any of them has an interest in possession. A sale is also excluded if the seller or any of those people gets a right to buy the property back. HMRC accepts at IHTM33081 that a sale to a family company or to the trustees of a discretionary trust is not excluded for this reason.
  • Purchases claw the relief back. If the claimant buys other real property between the death and four months after the last qualifying sale, the sale price is adjusted, and if the purchases cost more than the total sale prices no relief is due (section 192, IHTM33161).
  • Joint shares lose the discount. Where only a share was in the estate but the whole property is sold, the relief is worked out on the undiscounted value of the whole. In HMRC’s example at IHTM33181, a quarter share of a property worth £400,000 was valued at death at £90,000 after a 10% discount for joint ownership. The whole was later sold for £300,000, so the quarter share was revised to £75,000 with no discount.

When and how should the claim be made?

For shares, the claim must be made within four years of the end of the 12 month period after death (section 179(2A), IHTM34011). For property, it must be made within four years of the end of the three year period (section 191(1A), IHTM33012). The forms are:

Asset Form Sale period
Quoted shares, unit trusts, OEICs IHT35 12 months from death
Houses, buildings and other real property IHT38 3 years, or 4 years for sales at a loss

A claim cannot be withdrawn once made (IHTM33013), so timing needs thought. A claim can be made after the first loss making sale, but if a later sale in the period goes for more than probate value, that gain is swept into the same claim. HMRC treats property relief as provisional until four years and four months after the death unless no further change is possible, though it will normally consider an interim repayment of overpaid tax (IHTM33043).

What does a claim look like in practice?

Illustration only. An estate pays Inheritance Tax at 40% on everything above its nil rate band. Within 12 months of death the executors sell two holdings.

Holding Value at death Gross sale proceeds
Portfolio A £120,000 £90,000
Portfolio B £80,000 £86,000
Total £200,000 £176,000

The overall loss is £24,000, so the taxable estate falls by £24,000 and the tax by £9,600 (40% of £24,000). Portfolio B’s gain is included because every qualifying sale must be. If the executors had bought £44,000 of new quoted shares within two months of the last sale, the loss would be reduced by £44,000 divided by £176,000 times £24,000, which is £6,000, leaving relief on £18,000.

How does the claim affect Capital Gains Tax?

A successful claim changes the Capital Gains Tax position too. HMRC’s Capital Gains Manual at CG32234 explains that where the reduced value is used for Inheritance Tax, the sale price becomes the base cost, so the sale shows only a small loss equal to the costs of selling. It also means holdings that rose in value are adjusted upwards, which removes the gain on them. HMRC will not accept a claim made only to raise the base cost on an asset that carried no Inheritance Tax. The wider rules on executors’ and beneficiaries’ gains are covered in selling inherited property and CGT and the CGT uplift on death.

What mistakes come up most often?

  • Transferring shares or a house to a beneficiary before selling, which loses the relief entirely.
  • Reinvesting sale proceeds within the restricted period and being surprised when relief is cut.
  • Leaving out sales at a profit. HMRC requires all qualifying sales in the period to be included.
  • Assuming AIM shares or private company shares qualify. Only quoted investments do. Shares that have become worthless without being cancelled or suspended may instead need a review of the original valuation (IHTM34155) or, for income tax and capital gains purposes, a negligible value claim.
  • Selling a property to a child or other relative of a beneficiary, which is a non qualifying sale.
  • Deducting estate agents’ or brokers’ fees from the sale price. The gross price is used.
  • Getting the original value wrong. A careful probate valuation reported on the IHT400 is the starting point for any later claim.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.