An increasing number of families could be eligible for inheritance tax refunds on property sales as prices fall below valuations when their loved ones pass away.
Overpaid estate tax should be proactively claimed from HMRC, but you could get thousands of pounds back if you sell a property for less than expected within four years of death.
You will also be refunded inheritance tax on investment losses, but only if you sell for a lower value within the first year after a death.
Overpaid Inheritance Tax: You can get a refund if you sell for less
Rate hikes to curb inflation have shot up mortgage rates, depressing property prices for all sellers, including those selling a deceased relative’s former home.
The latest national house price index estimated that prices fell 3.5 percent year-on-year in June.
Inheritance tax is usually payable within six months of death and is 40 percent on the portion of a person’s estate that exceeds certain thresholds.
This is £325,000 if you are single, £650,000 jointly if you are married or in a civil partnership, or £1 million jointly if you transfer property to your direct descendants.
The Conservatives are reportedly considering including a pledge to abolish estate taxes in their next election manifesto, in a bid to garner votes.
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“While thousands of families claim back overpaid estate taxes each year, many are likely missing out,” said Sean McCann, financial planner at NFU Mutual.
“In a rising market, recoveries are normally made when a property is overvalued on the estate tax return or when its condition deteriorated between the time of death and subsequent sale.
‘The current malaise on the housing market will probably lead to even more surviving relatives selling their homes for a price lower than the value for which inheritance tax has been paid.
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“It is crucial to remember that the restitutions must be actively claimed as HMRC does not automatically repay the estate.”
A freedom of information request from NFU Mutual found that about 3,000 families were claiming back overpaid estate taxes on real estate and land in 2022/2023, and 2,000 on investment losses.
The total number of claims for overpaid inheritance tax was 22 percent higher than last year.
How to request a refund of inheritance tax
“Inheritance tax is based on the value of the property on the date of death and is normally payable within six months.” says McCann.
If the executors or personal representatives then sell a home at a lower price within four years of the death, or stocks or other qualifying investments within a year, they can reclaim inheritance tax.
McCann says you can seek advice from an accountant or adviser, but refund requests can only be made by the “right person” or people responsible for paying the estate tax.
This means an executor if there was a will, or an administrator if someone dies in a will.
Claims for refunds of estate taxes and stocks must be filed separately, notes Ammo Kambo, a financial planner at wealth management company RBC Brewin Dolphin.
“Property losses and gains cannot be used against stock losses/gains.”
Property refund claims
“If executors sell land or real estate within three years of death — four years if the death occurred after March 16, 1990 — they can claim that the sale price is used instead of the value at death,” says Kambo.
Sean McCann: While thousands of families reclaim overpaid estate taxes each year, many are likely missing out
‘If there are several sales, only the net loss of the total sale of land or property can be claimed.
“If land/properties are sold to a beneficiary or one of their relatives, it may not be possible to make this claim.”
What information should you collect and where do you request a refund?
McCann offers the following checklist:
– Every sale of land or real estate sold by the ‘right person’ in the four years after death must be counted.
– You must state the value of the property on the date of death, the sales value and the name of the buyer.
– A claim can be made up to seven years after the death (although the sale must be within four years of the death)
– HMRC advises that you should not make a claim until all the land and property to be sold by the ‘right person’ has been sold.
– For receivables on real estate that has fallen in value form inheritance tax IHT38.
Stocks and other investment returns
“If the executors sell listed shares of the deceased’s estate within 12 months of death, they may require the total sale price to be used in lieu of the value of the shares at the date of death,” says Kambo.
All shares sold within 12 months of death must be revalued in this way.
“You can’t choose to file a claim only on the shares that have fallen in value — the executors must have suffered an overall loss to claim the exemption.”
McCann says it’s important to check whether you’ve paid too much estate tax during times of stock market volatility, as recoveries can run into the thousands of pounds.
He notes that because all qualifying investments sold by the executor in the 12 months after the death must be included in the claim, not just the investments that have fallen in value, if some have risen in value this will reduce your repayment.
McCann says that under these circumstances, it may be more beneficial for executors to pass the shares or investments that have increased in value directly to the beneficiaries rather than selling them.
Ammo Kambo: If land or property is sold to a beneficiary or one of their relatives, it may not be possible to claim IHT refund
This means you only file a claim for the shares that have fallen in value, maximizing the amount recovered. This is common. I don’t know of any cases where this has been challenged.
“Where a challenge is more likely is where property is being sold below market value, particularly to family members.”
Legal and money experts have recently warned of probate delays leaving many survivors with no money to recover investment loss tax returns because they miss the one-year deadline.
Applying for probate is an essential step in taking control of an estate after someone dies, allowing executors to access bank accounts, settle debts, and arrange bequests.
McCann says, “In order to sell real estate, stocks, or other eligible investments, the executors need the award of probate.
Probate delays eat into the 12-month window available for executors to sell stocks or other qualifying investments. There is a danger that performers will fall by the wayside.’
What information should you collect and where do you request a refund?
McCann offers the following checklist:
– You must include any sale of a ‘qualifying investment’ sold in the 12 months following death (not just sales at a loss).
– “Qualifying Investments” include equities listed on a recognized stock exchange at the date of death, UK government securities (gilts or UK government bonds) and participations in unit trusts.
– You must specify the value on the date of death and the sales value.
– A claim can be made up to five years after the death (although the sale must be within 12 months of the death)
– Use for equity claims or other qualifying investments form inheritance tax IHT35
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