Inheritance tax receipts hit £2.6 billion from April to July 2023, according to data released by HMRC today. This is £237 million, or 10%, higher than the same period last tax year.
Years of house price increases, soaring inflation, and tax freezes have pushed an increasing number of families that would not consider themselves to be wealthy above the threshold for inheritance tax. But with asset prices falling more recently, many families could find they’ve overpaid.
If properties or shares were valued for inheritance tax purposes in late 2022 or early 2023, but are only now being sold, there’s a strong chance you’ll be selling them for the less than the value on which inheritance tax was paid. The good news is that there is a way to claim back the overpayment
Nicholas Hyett, Investment Manager at Wealth Club said:
“HMRC continues to see its inflows increase, month-after-month and year-after-year. But as house prices start to fall, its possible some beneficiaries have paid more inheritance tax than they really should.
Fortunately, there is a way you to claw back any of that overpaid inheritance tax:
The ‘Loss on sale relief’ – IHT35 form can be used to claim back losses on the sale of qualifying investments, such as shares, within 12 months of the date of death.
The perhaps lesser known – IHT38 form, which was used by just 3,000 people last year, allows you to claim back money on the sale of a property or land, to ensure beneficiaries are paying tax on the actual sale price and not its valuation at the time of death. Beneficiaries have four years from the date of death and could potentially save tens of thousands on some larger estates, especially now house prices are falling.
Lengthy delays in processing probate are making it difficult for people to claim these reliefs, and there have been calls for ministers to extend the claims window for IHT35 forms in particular.
There are rumours that the government might be considering scrapping inheritance tax altogether, which would eventually clear up the backlogs. But the reality is that in some circles, inheritance tax is already considered a voluntary tax, thanks in large part to government sponsored schemes designed to encourage investment into crucial parts of the UK economy.
Those concerned about inheritance tax should also consider;
Giving money away early. Gifts taken out of regular income, which are not deemed to affect the giver’s standard of living, are inheritance tax free on day one – as are certain smaller gifts. Timing is key as you can give unlimited amounts away but typically these take seven years to be completely inheritance tax free. Of course, once you give away the money you’ve lost control. If you need it back for an emergency, that’s not an option.
Investing in companies that qualify for Business Relief. These are typically inheritance tax free after two years. Investing in unquoted businesses can be risky, however, unlike giving the money away, you retain control.
Investing in an AIM ISA. ISAs are not inheritance tax free. When you pass away, your loved ones could miss out on 40% of your hard-earned cash. AIM ISAs are a popular way around this. They are riskier but after two years they could be IHT free.”
