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Falling house prices led to IHT overpayment

Thousands of Britons may have over-paid inheritance tax on residential properties as a result of falling house prices over the past four years, according to a recent study by a Warwickshire-based financial services provider.

29 May 2012

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Tax specialists NFU Mutual say that up to £90m in tax could be reclaimable after comparing inheritance tax breakdown from HMRC and monthly house price data from the Land Registry.
IHT is based on the value of the deceased’s property at probate and can be reclaimed if the property sells for less within four years.

NFU found that house prices have fallen by around 11 per cent since 2008 and an estimated 21,000 estates that included residential property have been admitted to probate during this time. This represents an average rebate of £4,260, with those that inherited between June 2008 to February 2009 and June 2010 to August 2011 most eligible for money back, as those periods witnessed the greatest fall in house prices.

Sean McCann, personal finance specialist at NFU Mutual, says: “Many people don’t realise that they can claim back inheritance tax if the property they inherit sells for less than it was valued at during probate.

“And with house prices generally falling over the last four years, thousands of people could still be able to claim back any such overpayment.”

The relief is known as ‘loss on sale of land relief’ - if there is more than one house (or interest in land) sold in the four years after death, the sale price of all those sold must be substituted for the values at death. Claims must be made by the ‘appropriate person’, normally the executors of the deceased’s estate who pay the IHT, by completing HMRC form IHT38.

Rebates might not be limited to residential properties. “There is a similar relief for quoted shares and unit trusts sold in the 12 months following death, for less than the value at death,” explains McCann.

“Similarly, relief is only available if the gross sale proceeds of all shares sold by the ‘appropriate person’ within 12 months of death is less that the date of death value for those shares (i.e there must be an overall loss on all sales).”

“The sales of all qualifying investments have to be included in the claim, not just those that have fallen in value,” clarifies McCann.

To apply for this relief the appropriate person must use HMRC form IHT35.

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Tax & Wealth structuring