It is possible for the loss on sale to exceed the original date
of death value (valued on the normal open market basis). This can
occur when there is a payment of ‘call’ (
IHTM34175) by the ‘appropriate
person’ (
IHTM34161) or there is a rights issue (
IHTM34187), which is taken into account
in calculating the value at death.
Where this situation arises, IHTA84/S188 provides for the
sale value to be adjusted so as to ensure that the loss
on sale would be equal to the value before
relief.
A trust fund includes 1,000 A Ltd shares valued immediately before the death at £1,000.
Two months after the death the trustees take up a 1 for 2 rights issue at £1 per share. The holding now comprises of 1,500 shares with a date of death value of £1,500.
Six months later they sell the holding of 1,500 shares for £400.
Apart from s.188 the loss on sale would be £1,500 - £400 = £1,100.
Since this exceeds the unadjusted value (£1,000) IHTA84/S188 applies and the sale value is treated as
£1,500-1,000 = £500.
This makes the loss on sale £1,000, which is equal to the value before the adjustment.
