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I was talking to an Independent Financial Advisor a couple of days ago and in conversation asked him how he was getting on winding up the estate of a mutual client who died about 18 months ago. “Fine”, he said, “but it looks like we have paid too much Inheritance Tax on the house” – “so why don’t you claim a refund?” I replied.

He was astonished. For those of you who don’t know, Inheritance Tax (IHT) is payable out of the estates of UK residents and UK domiciles. You can get more details about Inheritance Tax here and also of what is meant by UK resident and UK domicile by clicking here.

The problem that my colleague had was that IHT is generally due no later than 12 months after the end of the month in which a death occurred and Her Majesty’s Revenue & Customs (HMRC) will value the assets of any estate on the date of death. Of course what has happened since our mutual client died is that the value of houses has fallen. In this case the actual selling price was £75,000 less than the value agreed as being correct on the day our client died. At 40% tax that means the estate paid a whopping £30,000 extra tax.

In recent years we have all been used to a situation where house prices have risen rapidly and on that basis it often meant that tax was paid on a value lower than that actually achieved. That is tough luck on HMRC – they can’t claim more tax. However, in the situation we now find ourselves it is also tough luck on HMRC because as long as certain conditions are met it is possible for my IFA friend, as executor of the deceased clients estate, to reclaim the £30,000 overpaid. Any executor in the same circumstances can do the same.

The Law

Under Section 191(1) of the Inheritance Tax Act 1984, sale of land relief is available if an appropriate person – generally an executor:

  • Sells an interest in land or a building from a deceased’s estate – which includes a home or any buy-to-let property – to an unconnected third party
  • Within 48 months of the death (but under Section 241(1) of the Inheritance Tax Act 1984 the claim can be made up to 6 years after death)
  • For a value that is lower than the date of death value – the proviso here is the actual sale price has to be at least £1,000 or 5% (whichever is the lowest) less than the date of death value of the property on which IHT was calculated.

If these points are proved, the date of death and actual sale values are switched and the tax is paid on the actual sale value.

Cautions

Although in general it is not open to HMRC to claim extra tax if a property is sold for more than the date of death valuation if a claim is made and the estate has sold other land or buildings at more than the date of death value, the door is open for the taxman to ask for more IHT.

Claims involving agricultural or business property attract special reliefs and calculations involving people who already have an interest in a property buying from an estate are also more complex.

If you think this may affect you or any of your clients please contact james@jamesgreenandco.co.uk to discuss what we may be able to do to help you reclaim overpaid inheritance tax.

See Also:

Five Ways To Save Inheritance Tax

What Is Inheritance Tax?

8 Responses to “You Can Reclaim Inheritance Tax”

  1. Neil ashby says:

    Hi the value of my grandfathers house was not correct that he solicitor put down and we had to pay 42k in tax ,I have since found the true value was under the iht threshold I have paid 20 k to the tax they are asking for the rest but can’t pay but need to resend the true price so how do I start the ball rolling on this to retrieve the money back .

  2. Neville B says:

    Thanks James. I have indeed decided to keep pursuing this. As it happens, the DV has changed their view on 2 other properties I kept after I showed them some photos of them, and they have now agreed to our original probate values which were about 30% lower than the DV’s initial valuation. I hope this gives hope to other readers who find this thread.

  3. James Green says:

    Neville, it is always open for the District Valuer to argue over the price. This post was intended to point out that having agreed a price you could revisit it. In this case he/she seems to be taking the view that you sold at undervalue by selling as a job lot. You need to argue that you took the decision for sound commercial reasons. I spent several years sitting on valuation tribunals and I can assure you the DV doesn’t always win. Without full details of the amounts involved I really can’t say much more but if there is a case to be made you must make it. Any evidence you have as to the state of the property would be central I would think.

  4. Neville B says:

    James, you don’t point out that the DV can dispute the sale value as a fair sale price – which affects the valuation for IHT reclaim (see HMRC definition of ‘sale price’) !
    As my father’s executor, I sold a portfolio of houses by seeking a job lot sale to an investor/syndicate rather than seeking individual sales. THe DV argues we could have got more if sold separately but in Feb 2011 the market was tough and worsening, finance wasn’t available and I believe tenanted property in poor state and poor spec would have been just as hard to sell to individuals and we would have still had to discount heavily compared with 2009 probate values. The DV argues there is case precedence on this. I understand the purchaser has since sold some of the properties and the DV is using this info but the purchaser has probably sent his team in to renovate/improve them before sale. Any views?

  5. James Green says:

    In general Andrew you can indeed make a similar claim for a refund on the fall in value of shares. You may have run out of time however, but certainly it is something to take into account in your claim against the solicitor.

  6. Andrew Clarke says:

    After the death of my uncle we had a property worth £320.000 (Probate value) sold for £350.000 (profit of £30.000) and shares worth £340.000.There were some savings and cash but we paid IHT of £158.000.
    By the time the shares were put into a Trust their value had fallen to £112.000 approx due to not being administered between date of probate granted and formation of the Life Interest Trust.We are claiming against the solicitors.Can we claim a refund on share values?
    His date of death was 5th March 2007.

  7. CNA says:

    Nice post. I just stumbled upon your blog and wanted to say that I have really enjoyed browsing your blog posts. In any case I’ll be subscribing to your feed and I hope you write again soon!

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