Restrictions on relief for purchases: the restriction
The restriction is based on the ratio of the cost of the purchases of qualifying investments (IHTM34131) to the aggregate sale value, IHTA84/S180 (1). The formula used to calculate the restriction is
(Aggregate value of the relevant purchases ÷ Aggregate value of sales) × loss
The restriction is deducted from the loss that would otherwise be due.
Sam’s estate includes shares that have a date of death value of £12,000. The executor sells them within twelve months for £9,000. Under normal circumstances the loss would be £3,000. But within two months of the last sale the executor purchases other qualifying shares for £5,000. The loss relief is reduced by
(£5,000 ÷ £9,000) × £3,000 = £1,667
The net loss is now £3,000 - £1,667 = £1,333
If the aggregate value of the purchases equals or exceeds the aggregate values of the sales, no relief will be available.