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Inheritance tax reclaims jump to six-year high: could you get money back?

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17/02/2021
The number of families reclaiming overpaid inheritance tax increased to a six-year peak in 2020, new data has revealed.

According to figures from HM Revenue & Customs, following a Freedom of Information request from NFU Mutual, there were 6,262 reclaims made last year. That’s an increase of 763 cases from 2019.

The table below details how the number of inheritance tax reclaims have more than doubled since 2015:

Calendar year claim was made Total number of inheritance tax reclaims
2015 3,094
2016 4,540
2017 4,349
2018 6,180
2019 5,499
2020 6,262

 

The receipts the government enjoyed from inheritance tax fell for the first time in a decade last year, in part due to the introduction of a higher tax-free rate on estates.

The tax has previously been criticised by MPs for being excessively complicated, with calls for a complete overhaul.

Can I reclaim inheritance tax?

Inheritance tax is charged based on the value of the deceased person’s estate when they die, and usually has to be paid within six months of their passing. 

However, there may be occasions when the estimated value of assets owned by the deceased, such as property or stocks and shares, is too high. This can lead to the estate paying too much inheritance tax.

When the executors of the estate then sell on the assets, if the price has fallen from the estimated value, then they can reclaim the overpaid tax.

Importantly, this has to be done proactively ‒ the taxman doesn’t automatically hand the money back. 

Sean McCann, chartered financial planner at NFU Mutual, pointed out that the growing numbers reclaiming tax was a sign that more people were becoming aware that this was a possibility, and called on families to keep an eye on how house prices fare in 2021.

He continued: “Even small percentage falls in property prices can lead to significant amounts of tax being reclaimed. Inheritance tax is charged at 40% so if a property were to fall in value by £10,000 this could mean up to £4,000 could be reclaimed.”

McCann noted that there are differing deadlines for attempting to reclaim overpaid tax depending on the asset.

He explained: ““Families can reclaim overpaid inheritance tax on the value of property if it is sold at a lower value within four years of death. They can reclaim inheritance tax on qualifying shares and investments sold at a lower value in the 12 months after death.

“However, all the shares sold by the executor are aggregated, so if some have gone up in value this will reduce the amount of IHT that can be reclaimed.”

As a result, McCann argued it can be better for the executors of an estate to pass shares that have gone up in value directly to the family, and only sell shares that have fallen in value as this will maximise the amount of tax that can be reclaimed.

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