Exchanges of investments are treated as sales if
- they take place at a time when the market value of the investments is more than their date of death value, and
- they are outside IHTA84/S183 (broadly, this means that they are not the result of a reorganisation of share capital, a conversion of securities or, in certain circumstances, an issue of shares or debentures).
If they were not treated in this way there would be nothing to stop the creation of an artificial loss by selling investments that fall in price after the death and exchanging those that rise in price.
For the purposes of the relief, the investments exchanged are treated as sold at the date of exchange for a price equal to their market value. Market value means the value they would have if they were included in the estate of a person who died at that time, IHTA/S183 (6) and IHTA/S184 (2).
You should note that these rules apply
- whether or not there is any payment by way of equality of exchange, and
- regardless of the nature of the property taken in exchange.
Transactions within IHTA84/S183 are not treated as a sale. The new holding that results from the transaction is treated for the purposes of the relief as being the same as the original holding.
If the appropriate person (IHTM34161) made any exchanges, question 3 on form IHT 35 should be ticked ‘Yes’ and full details should be included with the form.