Are you due an inheritance tax refund?

Many bereaved families are missing out on significant inheritance tax rebates

Increasing numbers are forecast to be caught by inheritance tax (IHT). Almost 33,000 estates will pay IHT this tax year, according to predictions from the Office for Budget Responsibility (OBR), an increase of 50% on the 22,100 who paid in 2018-19.

A five-year freeze in tax allowances announced in the March Budget, combined with inflated house prices and the rising cost of living, means the Government’s take from IHT will reach a new all-time high of £6bn by this year, and is forecast to grow to £6.6bn by 2026, according to the OBR.

However – and not a lot of people know this - some people will have overpaid the tax and will be due a refund.

Volatile swings in stock markets when the pandemic struck which saw global markets fall by as much as a third in the first half of 2020, means many people may have overpaid on their investments within the estate. With renewed stock market volatility due to concerns over rampant inflation and the Europe-wide energy crisis, more people may become eligible to claim a refund.

And if the property market begins to cool following the end of the stamp duty holiday, more still could be in for a claim.

The reason overpayments happen is because the IHT due on an estate has to be settled within six months after death. In the current environment, it means that by the time the family manages to sell the inherited property and/or or Isa and investment portfolios, the prices may have fallen from the valuation given at that time.

Lack of awareness of the facility to apply for a refund means many people could potentially miss out on thousands. According to a recent Daily Telegraph report, fewer than 6,000 people claimed refunds on overpaid inheritance tax (IHT) last year, despite a significant increase in the number of estates paying the 40% levy.

If you think you have a claim for an IHT rebate, you need to actively make the effort. It is not down to the HMRC to retrospectively monitor the situation on your behalf. So how do you go about it?

How to make a claim

To claim a refund on the property if the value has fallen, you need an IHT38 form. For shares and investments, you need an IHT35 form. Fortunately, if your investments and/or property have risen in value since payment, your tax bill will not increase.

If you need to make a claim for investments, you have a 12-month window from the date of death. The window for a property is four years.

The forms need to be filled in by the “appropriate person”, usually the executor.

For those of you fortunate enough not to be in this position, the above serves as a reminder that some IHT planning in advance can help reduce or eliminate any liability to IHT in the future.

If you think you may fall into the IHT trap at a later date, it can pay to seek out professional advice now. Contact Kellands today for a free, without obligation, initial discussion, so we can suggest ways to help reduce your potential IHT bill.

Taxation reliefs, levels and bases can change in the future and this article refers to our understanding of current taxation legislation. Tax is dependent on your own personal situation and circumstances and is subject to change based on UK legislation and taxation regime.

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