Inheritance tax refunds up due to house price slump
A Freedom of Information (FOI) request by NFU Mutual found that the number of people reclaiming inheritance tax (IHT) due to lower property prices has rocketed over the past two years.
Between April 2010 and April 2017, there were always between 2,000 and 3,000 people repaid IHT each year because they subsequently sold a property for cheaper than it was valued.
But the number shot up to more than 4,000 in 2017/18 and increased again to more than 4,500 in 2018/19, according to HMRC data.
The climb coincides with a slump in house prices, particularly in London and the South, and financial advisers are now encouraging other families to check whether they could be owed thousands of pounds.
Sean McCann, chartered financial planner at NFU Mutual, said: “Many families may have paid more inheritance tax than they need to. If you’ve inherited a property recently you may well have overpaid inheritance tax considering the sizeable slumps in house values in certain areas of the country.
“When property prices and share values fall, rebates are not given automatically and need to be proactively claimed. Those that opt for do-it-yourself probate are not always aware that inheritance tax can be reclaimed in this way.
“With such a dramatic fall in house prices in some areas of the country, families should take advice to ensure they don’t miss out on any potential rebates.”
How to reclaim inheritance tax
Inheritance tax is charged on the value of assets at death and must be paid before the estate can be handed over to the family. But if executors sell a property for a lower value within four years of the death, they can reclaim the tax paid on the loss through an IHT38 form.
But it’s not just falling house prices that could lead to a tax rebate. If an executor sells shares and some other investments within 12 months of death, they can also reclaim inheritance tax paid on any loss through an IHT35 form.
There are some exceptions though; if some shares or unit trusts have risen and others have fallen, all the sales are aggregated.
Because of the nature of the stock market, the number of successful claimants repaid inheritance tax in this way fluctuates more. There were 2,014 claimants in 2016/17, but that fell to 858 a year later before climbing back up to 1,403 in 2018/19. In the first seven months of this year, there have been 943 successful claimants.
“To maximise the reclaim value, as an alternative you could assign the shares that have gone up in value direct to beneficiaries, and only sell those that have fallen in value,” said McCann.