Restrictions on relief for purchases: introduction
Loss on sale of shares relief is intended to help those who are have to sell investments at a loss to raise money to pay tax, debts, administration expenses or legacies. If there were no restriction on the relief to take account of purchases there would be nothing to stop the ‘appropriate person’ (IHTM34161) selling the shares to create the loss then either buying them back (‘bed and breakfast’ transaction) or re-investing the proceeds in other shares.
To stop this happening, IHTA84/S180 applies where an appropriate person purchase ‘qualifying investments’ (IHTM34131) between the date of death and two months after the date of the last sale. The amount of the relief is reduced by the proportion that the gross purchase price bears to the gross sale value. An additional adjustment (IHTM34215) is needed where the appropriate person purchases shares of a similar type to those held in the death estate and subsequently sells part of the combined holding.
Purchases of qualifying investments should be included in part 2 of form IHT 35. In general, it is the responsibility of FACET to check the sale prices and calculate the allowable loss. There are separate instructions (IHTM34098) for FACET staff.
If any problems arise when dealing with this restriction you should refer your file to Technical (IHTM01081).