IHT reclaims rise in 2020, new HMRC figures reveal

The number of Inheritance Tax (IHT) reclaims reached a six-year peak in 2020 as more families clawed back overpaid tax following falls in the value of property and shares.

New figures released by HMRC revealed that there were 6,262 IHT reclaims made over the course of 2020, representing an increase of 763 from 2019, when there 5,499 reclaims.

The figures were obtained under a Freedom of Information (FOI) Act by financial adviser, NFU Mutual, and showed that IHT reclaims in 2020 had more than doubled since 2015, when just 3,094 IHT reclaims were made.

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

NFU Mutual chartered financial planner, Sean McCann, suggested the new figures show that more people are becoming aware they can reclaim overpaid IHT.

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

“Even small percentage falls in property prices can lead to significant amounts of tax being reclaimed. IHT 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 the rebound that was felt in the property market in 2020, the FOI request revealed there were a total of 4,419 reclaims on loss of property value, which was 581 more than in 2019 when there were 3,838 reclaims. A turbulent year in the stock market also resulted in a total of 1,843 IHT reclaims for shares sold at a lower value, which was a small increase from 1,661 in 2019.

“Families can reclaim overpaid IHT on the value of property if it is sold at a lower value within four years of death,” added McCann. “They can reclaim IHT 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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