IHT Loss on Sale of Land Relief: ss190-198 IHTA 1984
If inherited property sells below its probate value within 4 years of death, executors can substitute the actual sale price for the probate value — reducing the IHT bill by 40% of the shortfall. Claim on form IHT38.
Loss on Sale of Land: Key Facts
Five Qualifying Conditions
Within 4 years of death
Sale date (not completion of probate) must be within 4 years from the date of death
Arm's length sale
Purchaser must be unconnected — not a beneficiary, family member, or business associate
No interest acquired after death
The estate must not have improved or extended the interest after death
Not leased at below market rent
Properties let to family/beneficiaries at undervalue create complications
Formal election filed
IHT38 must be submitted — relief is not automatic
Frequently Asked Questions
What is IHT loss on sale of land relief?
Under ss190-198 IHTA 1984, where qualifying land or buildings in the estate are sold below their date-of-death probate value within 4 years of the death, the personal representative can elect to substitute the sale proceeds for the probate value. This means IHT is calculated on the actual sale price rather than the (higher) probate value — reducing the IHT bill by 40% of the difference between the two. The relief applies only to sales below probate value: if the property sells above probate value, normal IHT applies and the corrective account is handled separately.
What conditions must be met to claim loss on sale of land relief?
The qualifying conditions under ss190-198 IHTA 1984: (1) Time limit: the sale must occur within 4 years of the date of death — not the date of grant of probate; (2) The sale must be a qualifying sale: at arm's length to an unconnected purchaser (not a family member or beneficiary); (3) No interest in the property must have been acquired by the estate after death — for example, if the estate acquired the freehold of leasehold land after death, the relief may be restricted; (4) The property must not have been leased from the estate at a rack rent — a property rented by the beneficiaries at below-market rate creates complications; (5) A formal election must be filed with HMRC — it is not automatic. The election is made on IHT38 (Claim for relief — loss on sale of land).
How is the IHT saving calculated when selling inherited land below probate value?
The IHT saving equals 40% of the difference between the probate value and the sale proceeds. Example: probate value £400,000, sold for £340,000, difference £60,000. IHT saving = £60,000 × 40% = £24,000. If the estate paid IHT at a reduced 36% rate (because 10%+ went to charity), the saving is 36% of the difference. The claim must be made on form IHT38 and submitted within 4 years of death. Any overpaid IHT is refunded by HMRC once the claim is accepted. Note: if several properties are involved, the relief applies to the aggregate — you cannot cherry-pick only loss-making properties.
Does the relief apply to all types of property?
Loss on sale relief under ss190-198 IHTA 1984 applies specifically to land and buildings — including houses, commercial property, agricultural land, and woodland. It does not apply to listed shares and securities (which have their own ss178-189 regime for qualifying investments). It applies to the whole of the land interest, including leasehold and freehold. The property must have been included in the deceased's estate at death: relief is not available on assets that were already settled or held in trust unless those assets were included in the IHT calculation. Land or buildings held jointly as tenants in common (the deceased's share only is included) qualify in the same way.
Does claiming loss on sale of land relief affect capital gains tax?
Yes — there is a CGT interaction. Normally, when executors sell a property during administration, their CGT base cost is the probate value (the market value at death under s274 TCGA 1992). If they claim IHT loss on sale of land relief, the IHT substituted value becomes the base cost for CGT purposes (under s274 TCGA 1992 as modified). Since the sale was at the substituted value and the base cost is now also that value, there will usually be little or no CGT. However, where the market has recovered between death and sale — which does not affect IHT if the sale was within 4 years — the CGT exposure is eliminated since the base cost tracks the IHT value. Personal representatives should consider both taxes before making the election, as in some situations the CGT reduction may be worth more than the IHT reduction depending on estate composition.
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