Loss on sale of land relief, explained
Loss on sale of land relief lets executors replace the value at death with the actual sale price when an estate's land or buildings are sold for less, and reclaim the Inheritance Tax on the difference.
The legal basis
The relief is in sections 190 to 198 of the Inheritance Tax Act 1984, with the main rule in section 191. It covers "interests in land": houses, flats, land and buildings, freehold or leasehold.
The key rules
- Who: the claim is made by the appropriate persons, the people liable for the tax, usually the executors or administrators.
- When the sale happens: within 4 years of the death. Fourth-year sales count only if they are at a loss.
- All sales together: every sale of land within the period is included. Gains reduce losses.
- Connected buyers: sales to beneficiaries, their close relatives, or others with an interest are excluded.
- Buying again: buying land within 4 months of the last sale can reduce or remove the relief.
- Changes to the property: if the interest sold differs from the interest held at death, the values are adjusted.
- Time limit for the claim: within 4 years after the end of the 3-year period beginning on the date of death.
How it is claimed
On HMRC form IHT38, signed by all the appropriate persons. HMRC may refer the sale price to the District Valuer if it looks low.
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Does the relief apply to shares?
No. Section 191 covers land and buildings. Quoted shares sold at a loss within 12 months have their own relief, claimed on form IHT35.
Can selling costs be deducted?
The form asks for the gross sale price. Check HMRC's guidance on IHT38 for how costs are treated in your case.