Inheritance Tax: Britons eligible to reclaim thousands of pounds as property prices fall

Inheritance tax: Financial advisor provides advice

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Falling property prices are believed to have come about by the end of the stamp duty holiday. Currently, the stamp duty holiday is set to end and return to its original rates on October, 1 2021, after being introduced during the coronavirus pandemic. According to official statistics, house prices fell by an average of 3.7 percent in the UK in July compared to June.

A closer look at these figures revealed that house prices in England fell even further over this period, dropping 4.5 percent.

Inheritance Tax is a levy imposed on the estate of someone who has died. Their estate includes their money, possessions and property.

If the person who passed away property is sold by the executors within four years of their death at a lower value, overpaid IHT may be able to be reclaimed.

According to a Freedom of Information (FoI) request submitted by insurer NFU Mutual, around 3,630 families reclaimed IHT by doing this in the 2020/21 tax year.

READ MORE: State pension in shock £1BN shortfall: 134k pensioners owed £9k each

Sean McCann, Chartered Financial Planner at NFU Mutual, outlined why Inheritance Tax responds to the fluctuating property market in such a way.

Mr McCann said: “With house prices starting to dip, it’s important families are aware of this ability to reclaim inheritance tax that could save them thousands of pounds.

“Inheritance Tax is assessed on the value of a person’s estate on the date of death and the tax must normally be paid within six months.

“But if property is sold within four years of death for a lower price, the overpaid inheritance tax can be reclaimed.

“The number of these reclaims dipped last year due to the buoyant housing market, but are likely to increase if house prices continue to fall.

“With Inheritance Tax allowances frozen for the next five years, more and more families are being caught in the net.

“It’s important to take advice to ensure your family doesn’t pay more tax than they need to.”

However, the number of families reclaiming Inheritance Tax due to falling property prices was down 26 percent compared to the prior year.

For the 2019/20 tax year, around 4,924 families across the UK reclaimed money back from IHT as a result of changes to the property market.

On top of this, NFU Mutual’s FoI request found that more Britons are becoming aware of how to claim Inheritance Tax back on loss of shares, which increased last year to 2,240 claims.

Reacting to this development, McCann explained: “These figures show more people are becoming aware that they can reclaim overpaid Inheritance Tax when share prices fall.

“The increase in claims is due to the fall in share values we saw as a result of the coronavirus pandemic in the early part of 2020.

“Many families are unaware they can reclaim overpaid IHT when share values fall.”

How to reclaim Inheritance Tax

Those looking to reclaim money back on IHT must submit an IHT35 form to reclaim on loss of shares and an IHT38 form to reclaim on loss of land and property.

According to advice issued by NFU Mutual, there are a “number of traps” people fall into when attempting to make a claim.

The insurer explained: “The sale of the shares or property must be made by the ‘appropriate person’ normally the executor.

“If the shares or property have been passed to members of the family who then sell at a loss they cannot reclaim.

“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.

“One way around this is to pass the investments that have gone up in value to the beneficiaries and only sell the ones that have fallen in value, maximising the amount that can be reclaimed.”

Any families looking to get money back on Inheritance Tax are encouraged to submit either a IHT35 or IHT38 form as soon as possible.

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