The number of Inheritance Tax (IHT) reclaims reached a six-year peak in 2020, as more and more families clawed back overpaid tax after a fall in value of property or shares. Figures released by HM Revenue and Customs, following a Freedom of Information request by financial advisers NFU Mutual, show there were 6,262 reclaims in 2020.
It’s important to note that not every estate will be subject to Inheritance Tax.
In 2017 to 2018, 3.9 percent of UK deaths resulted in an Inheritance Tax (IHT) charge.
This marked a decrease by 0.7 percentage points since 2016 to 2017.
There’s normally no Inheritance Tax to pay if the value of an estate is below the £325,000 threshold.
Furthermore, if the person leaves everything that may be above the £325,000 threshold to their spouse, civil partner, a charity or a community amateur sports club, then there is usually no Inheritance Tax to pay.
There are ways to increase the threshold, such as a person giving away their home to their children, stepchildren or grandchildren.
The standard Inheritance Tax rate is currently 40 percent, and this is only charged on the portion of the estate above the threshold.
Addressing the number of reclaims in 2020, Sean McCann, Chartered Financial Planner at NFU Mutual, said: “These figures show more people are becoming aware they can reclaim overpaid Inheritance Tax.”
Mr McCann went on to point out how families being aware of the ability to reclaim Inheritance Tax could be particularly crucial this year.
“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,” he said.
“Even small percentage falls in property prices can lead to significant amounts of tax being reclaimed.
“Inheritance Tax is charged at 40 percent 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, NFU Mutual said.
And, 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.”
Ms McCann 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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