Can I reclaim IHT paid on a share portfolio?

Sadly, my father died eight months ago. He left a sizeable share portfolio on which we paid inheritance tax (IHT). The value of some of those shares has fallen, which if [it had applied] at the time of his death would have meant a smaller IHT bill. Is it possible to reclaim IHT paid on a share portfolio?

Amish Patel, a senior associate in the private client team at the law firm RWK Goodman, says UK inheritance tax is charged on the value of assets in the estate at the date of death. It’s a “snapshot” which doesn’t take into account fluctuations in the value of assets.

While the shares remain within the portfolio, there is no process to claim for relief. However, there is a process for claiming relief on certain assets, including shares, where those assets have been sold at a loss, within a certain timeframe, when compared with the date of death value.

A claim can usually only be made by the “appropriate person” who settles the inheritance tax, usually the executor or administrator of the estate.

To claim the relief for loss on sale of shares, the shares must be a “qualifying investment” which broadly includes shares and securities quoted on the stock exchange (although this does not include Aim), UK government stock, and holdings in unit trusts.

The claim needs to be in relation to all qualifying investments which are sold, as opposed to those sold at a loss. HM Revenue & Customs will not let you cherry pick shares sold at a loss.

However, the executor can continue to retain the shares which have not fallen in value in the estate and sell only those that have fallen in value to allow the relief to be claimed. The other shares may be transferred to beneficiaries or sold after 12 months of the date of death.

To qualify for relief the shares must be sold within 12 months of the date of death and the claim form must be submitted to HMRC within four years from the end of that period.

The relief does not include any commissions or fees you paid in relation to the sale. It is therefore the gross sale price that is to be submitted when claiming relief.

Importantly, the executor or administrator should always take appropriate financial advice and, if necessary, seek the views of the beneficiaries, before selling.

How can we resolve France-UK inheritance tax liabilities?

I am a French national, but I also hold non-domicile status in the UK as I frequently stay there for long periods with my husband and children, who relocated for employment and education opportunities respectively. My husband and I have agreed that, after too many years of putting off organising how our assets will be passed on in our wills, we must both now prioritise this matter.

As a UK non-domicile, I am aware I am entitled to some more tax-efficient planning options than a UK domicile. I wanted to clarify a few of these options given that my family is likely to remain in England for the foreseeable future, would it be more beneficial to make a gift of my non-UK assets, or should I transfer these into trusts? Are only my non-UK assets outside the scope of IHT, what about any connections my assets might have with UK residential property? From the perspective of my husband, who is a UK domicile, what taxes should he be aware of when leaving some of his estate to me in his will?

James Austen, a partner at Collyer Bristow specialising in trusts, tax and estate planning, says multi-jurisdictional estate planning is usually a complex affair, with different national rules on matrimonial property, succession, and tax coming into conflict, and this is especially true of the UK and France.

In the UK, where there is no specific matrimonial property regime, there is complete testamentary freedom, such that each spouse may dispose of their assets during life and on death as they see fit. Conversely, France applies a number of alternative matrimonial property regimes depending on the marriage contract, from séparation de biens (similar to the English “separation of ownership”) to communauté universelle (whereby all property is owned jointly, with no English equivalent). Subject to the property regime, France applies the Napoleonic Code which includes fixed forced heirship entitlements under its domestic law.

Factors determining which property/succession regime applies include the date of the marriage, where it was performed, and the first country which the married couple made their habitual residence. The EU Succession Regulation can sometimes assist to resolve conflict of law issues, but does not apply here.

In your case, as a French-resident national, you should assume that only your UK-situated assets will be subject to UK inheritance tax (IHT) when you die. Tax on the remainder of your estate will be determined under French law.

However, depending on how much time you spend in the UK in each tax year, together with the number of “ties” to the UK (such as the presence of family members, the availability of residential accommodation, etc), you may be treated as resident in the UK under the statutory residence test, as well as resident in France under French domestic law.

In addition to complicating your annual tax filings in both jurisdictions, this is also relevant to your domicile position, because if at the time of your death you have been resident in the UK for 15 of the past 20 years, you are treated as “deemed domiciled” in the UK for IHT purposes, so your entire worldwide estate would be subject to IHT. This complicates any tax planning, though the UK and France have a tax treaty intended to prevent double taxation of inheritances under their respective domestic rules.

As to your husband, under English law he is free to dispose of his assets as he wishes, and gifts between spouses are normally tax-free. An exception applies where a person domiciled within the UK leaves assets to a spouse domiciled elsewhere — called a “domicile mismatch”. In such cases, the tax-free amount passing to a non-domiciled spouse is limited to £325,000, the remainder being taxed to IHT at 40 per cent.

An option here is for the non-domiciled survivor to elect to be treated as if they are domiciled in the UK, which would mean that the spouse exception would apply in full. However, consequently that the survivor’s estate would be subject to UK IHT on death, unless by that time they had broken all ties with the UK — typically at least five full tax years beforehand. Special wording can be included in the will of your English domiciled husband to cater for this eventuality.

While these considerations are complex, good, timely, advice from an English solicitor and a French notaire, experienced in UK-France tax and estate planning, can enable appropriate measures to be put in place to mitigate any difficulties and ensure that assets pass as intended on death in as tax-efficient a manner as possible.

You ask whether lifetime planning using trusts is advisable. Because of your French nationality and the French location of some of your assets, the answer is almost certainly “no”. While the flexibility of trusts is an attractive and normal part of succession and tax planning in the UK, both during lifetime and on death, they are viewed with deep suspicion in France and are subject to additional reporting obligations and taxed punitively. As a result, trusts are almost always to be avoided where French nationals and French assets are concerned.

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.