Falling house prices ‘could fuel IHT reclaims’

Families could claim back thousands of pounds in inheritance tax (IHT) following the latest slump in house prices, a financial advice firm has highlighted.

Data released this week by the Office for National Statistics revealed that house prices in southern England (across London, the east of England, the south east and the south west) fell by an average of 0.9% in the year to July 2019.

The most acute effect was felt in the north east of England, where house prices dropped by 2.9%. In the south east region prices also fell by 2% over the past 12 months, while London saw a dip of 1.4%.

Inheritance tax is charged on the value of assets at death and must be paid before the estate can be handed over. But if executors sell a property for a lower value within four years of the death, they can reclaim the tax paid on the loss through an IHT38 form, NFU Mutual has explained.

With house prices now falling in many areas of the country, this potential rebate could affect thousands of people. And the rule also applies to shares and some other investments sold within 12 months of death, where IHT paid on any loss can be reclaimed through an IHT35 form.

NFU Mutual chartered financial planner, Sean McCann, said: “Many families are missing out and paying more inheritance tax than they need to. When property prices and share values fall, rebates are not given automatically and need to be proactively claimed. Those that opt for DIY probate are not always aware that IHT can be reclaimed in this way.”

He added: “With over half of all estates paying IHT falling in London and the south east, those living in and around the capital – where house price falls have been the most dramatic – should ensure they don’t miss out on any potential rebates due.”

A Freedom of Information request also obtained by NFU Mutual revealed that in each year from 2010/11 to 2016/17, there were between 2,000 and 3,000 successful claims through IHT38.

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