Inheritance tax reclaims reached six-year peak in 2020

Figures released by HMRC to financial advisers, NFU Mutual, in a Freedom of Information request show there were 6,262 reclaims made in 2020, an increase of 763 from 2019.

The number of inheritance tax reclaims reached a six-year peak in 2020 as more and more families clawed back overpaid tax following a fall in value of property or shares.

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.

If, when the executors come to sell any property or shares, the price has fallen, they can reclaim the overpaid tax. The tax relief is not automatic and has to be pro-actively reclaimed.

Number of estates reclaiming inheritance tax*

 Calendar year claim was made Number of IHT38 claims
(loss on sale of land/ property)
Number of IHT35 claims
(loss on sale of shares)
Total number of IHT reclaims
2015 2,199 895 3,094
2016 2,251 2,289 4,540
2017 3,364 985 4,349
2018 4,948 1,232 6,180
2019 3,838 1,661 5,499
2020 4,419 1,843 6,262

*Source: Freedom of Information request

Sean McCann, Chartered Financial Planner at NFU Mutual, said: “These figures show more people are becoming aware they can reclaim overpaid inheritance tax.

“If house prices start to fall in 2021, it’s important families who have recently paid an inheritance tax bill are aware of this ability to reclaim, which could save them thousands of pounds.

“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.”

Despite a buoyant property market in 2020, there were a total of 4,419 reclaims on loss of property value, nearly 600 more than 2019.

During a turbulent year in the stock market, there were a total of 1,843 reclaims for shares sold at a lower value, a small increase from 2019.

HMRC said: “Many of these claims will relate to tax liabilities created in previous tax years, given the time permitted to make a claim following an IHT-liable death.”

Sean 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. It can be better for the executors to pass shares that have gone up in value direct to the family, only selling the shares that have fallen to maximise the amount of tax that can be reclaimed.”

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