Treatment of Northern Rock shares for the purposes of inheritance tax relief

9th July 2008

HMRC have released a question and answer document dealing with the position where an individual died between 22 February 2007 to 21 February 2008 owning shares in Northern Rock, and the shares were subsequently taken into temporary public ownership before either being sold by the personal representatives or transferred to a beneficiary of the will or under the deceased’s intestacy.

For the purposes only of section 186A Inheritance Tax Act 1984 the shares will be treated as if they had been cancelled as at 22 February 2008 and relief might be available.

The q&a document provides:

Q. Who does this apply to?

A. It applies potentially to the personal representatives of estates where

The deceased died in the 12 months prior to 22 February 2008; and

The deceased owned shares in Northern Rock when they died; and

The personal representatives still held the shares when they were taken into public ownership on 22 February 2008.

Q. How am I, as executor of such an estate, affected?

A. The treatment effectively means that for the purpose of making a claim for IHT ‘loss on sale’ relief, a holding of Northern Rock shares can be treated as if they had been sold for £1.

Q. Does that mean I’m due a refund of IHT?

A. That depends on whether there is a net loss from all the sales of qualifying shares (i.e. shares listed on a recognised stock exchange) by the personal representatives including the deemed loss on transfer of the Northern Rock shares.

Q. How does the ‘loss on sale’ relief work?

A. If qualifying shares (shares listed on a recognised stock exchange) are sold (or can be treated as sold) within one year of the date of death for less than the value on which IHT was paid, you may be able to claim relief for loss on sale of shares using form IHT35 (http://www.hmrc.gov.uk/cto/forms/iht35.pdf). Full instructions for making the claim are given on the form.

Q. The concessionary treatment would have applied except that I actually sold the Northern Rock shares before 22 February 2008: can I substitute the £1 deemed sale proceeds for the actual sale proceeds?

A. No. If you had already sold the shares before 22 February 2008, you must use the actual sale proceeds when you are completing the IHT35 claim form.

Q. Why does the concessionary treatment apply only where the deceased died within the 12 months prior to 22 February 2008?

A. Where the deceased died more than 12 months before 22 February 2008, the full 12 month period during which the ‘loss on sale’ relief applies will have expired before Northern Rock shares were taken into temporary public ownership. And where the deceased died on or after 22 February 2008, the estate of the deceased will not include shares in Northern Rock, but a right to compensation.

Q. Will the IHT ‘loss on sale’ relief calculation be revised once the Northern Rock compensation has been fixed?

A. No.

Q. Will HMRC be reviewing their records to ascertain which estates contained holdings of Northern Rock shares?

A. HMRC’s records do not enable estates that included a holding of Northern Rock shares to be identified. So Personal Representatives will need to apply for relief on form IHT 35, as stated above.

Q. I have already claimed ‘loss on sale’ relief for sales of other qualifying shares and received an IHT refund. Can I now make a claim for the Northern Rock shares?

A. Yes (assuming of course that the Northern Rock shares were still held by the personal representatives immediately before 22 February 2008). You should use the IHT 35, as stated above.

Q. Following the Treasury’s acquisition of Northern Rock shares, I made a claim for relief, which HMRC rejected because the shares had not actually been sold. Will HMRC automatically review my case?

A. HMRC’s records do not enable cases where a claim may have been made in respect of Northern Rock shares, and rejected, to be identified. So you should write to the HMRC Inheritance Tax office that dealt with the original claim and ask for the claim to be reviewed.

If you have any further queries, you should contact the IHT and Probate helpline on 0845 30 20 900