When you lose a loved one, there are a lot of things to arrange, and paying Inheritance Tax (IHT) can be one of them. But, for some people, two IHT forms could help you claim back thousands of pounds. And it’s when markets are volatile, that the chance is even greater.

According to the Office for Budget Responsibility, IHT alone will have raised £6.7 billion in 22-23. This represents 0.7 per cent of all receipts and is equivalent to 0.3 per cent of national income.

Do I need to pay Inheritance Tax?

If your estate is valued at £325,000 or more, then you will normally pay IHT on anything over that amount. However, it’s not always that simple. You may have given your house to your children or grandchildren, for example. In that case, the threshold can rise to £500,000. And there are also different rules for leaving money or assets to your spouse, civil partner or charity.

Who pays Inheritance Tax over to HMRC?

IHT is normally paid by the executor of a Will. Although watch out because there are exceptions.

How much Inheritance Tax has to be paid and when?

The amount of IHT you pay will depend on the value of your assets (the estate) at the date of the death. The executor of the Will or the person responsible, will need to pay the full amount to HMRC within six months.

An executor can make early IHT payments before they know the exact amount of IHT that is owed. Known as ‘payments on account’, HMRC charges interest if all the tax owed is not paid by the due date. If you’re unable to calculate how much you owe, a payment on account can help avoid some of the interest.

How and when can I complete the IHT forms to claim a refund?

In a falling market, it is possible that 40 per cent tax will have been paid on an asset that turns out to be worth much less. If this is the case, it’s possible to reclaim some of the IHT paid.

For example, you paid the IHT that was due within the six months required. The estate includes a portfolio of shares at their probate valuation but when you sell the shares left to you, the price obtained is less than that declared at the time of death.

When it comes to share investments, you have a 12-month window from the date of death to make a claim. If it involves a sale of property this time limit is extended to four years. So, if you sell land or buildings on the open market for less than the probate value within four years, you can make a claim. The IHT can be recalculated by substituting the probate value with the actual sale proceeds.

Which IHT forms do I need to complete?

  • IHT35 – This form is to claim back overpaid IHT on shares and other investments that have later fallen in value.
  • IHT38 – This is to claim back IHT on property.

It’s important that the IHT forms are submitted by the ‘appropriate person’. This is typically the executor, or if there is no Will, the administrator.

What to consider

When it comes to reclaiming any overpaid tax you will need to be proactive and diligent Inheritance Tax Planning can help with that.

Making a claim for overpaid IHT could also have a bearing on any Capital Gains Tax due, so it’s definitely worth asking an accountant to take a look at the overall position. They’ll be able to tell you if it’s more beneficial to reclaim IHT or to save on Capital Gains Tax.

If you choose to dispose of shares in the six month window to reclaim IHT they must all be sold. You can’t just sell a share that has decreased in value and hold onto the rest of the portfolio. You may come to the conclusion that by selling the shares you will miss out on future earnings. So timing is also a big factor to consider.

In fact, there are lots of factors at play but the process is there for you to claim if needed. For example, if you think the value you received for your parents house was less than it was valued at in probate, it could well be worth investigating a possible claim.

It’s important you remember about the time limits for claims though as part of your inheritance tax planning as once they have expired then the window of opportunity will disappear.

Need further advice on any of the topics being discussed? Get in touch and see how we can help.

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    About Karen Jones

    Having worked for one of the world’s largest accountancy firms, Karen Jones uses her tax knowledge and skills to help clients obtain substantial reductions to their tax liabilities.

    With an expanding portfolio of tax clients, Karen enjoys the variety her work brings her and particularly likes working with new businesses and people. With a growing number of tax clients, she frequently faces a variety of challenges and relishes the experience she gains as she solves them.

    Karen likes the THP ethos: “I like the way the team has a professional, but friendly and down-to-earth approach – it creates a productive atmosphere that benefits everyone.”

    Karen’s specialist skills:

    • Personal Taxation
    • Tax Efficient Planning
    • Trust Administration
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