Avoiding the risk of being overcharged inheritance tax

House prices in the UK are expected to fall dramatically over the next year which could have an effect on the amount of inheritance tax people pay.

Last week Lloyds Banking Group warned that house prices could fall by as much as a fifth next year due to the hit to mortgage lending amid mounting interest rates. According to Nationwide’s October House Price Index, house prices fell by 0.9 percent between September and October this year. This was the first monthly fall since July last year and the biggest since June 2020.

If house prices were to fall even further, such as the 20 percent predicted by Lloyds Banking Group, people who are inheriting property from someone who has died could end up paying a lot more inheritance tax than they may anticipate. This is because, when calculating the value of a deceased person’s estate, HM Revenue and Customs (HMRC) uses the property value at the date of death and not when it is sold. This means if a property on the date of death is worth £1million, but it is sold several months later at £850,000 if the market price drops by 15%, then a person would have to pay inheritance tax on the value of £1million. This could possibly add tens of thousands of pounds to an inheritance tax bill.

Inheritance tax is a tax people pay on the estate of someone who has died and the estate is made up of the property, money and possessions of the person who is deceased. Currently, Britons pay a tax of up to 40% on the value of an estate above the current nil rate band threshold of £325,000. However, there is a way that people can get try and get their money back and this is through HMRC’s IHT38 relief scheme.

This little-known scheme allows the value of the sale price to be swapped for the value of the property at the time of death. To apply for this, a person must make a claim using HMRC’s IHT38 form. On this form, people will need to give information about the property, how much it was sold for, whom it was sold to, and the sale date. But, before going ahead, it is very important to think carefully becaus,e once submitted, a claim cannot be withdrawn.

If you have recently inherited a property and need advice, please contact us here.

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Sources: Techlink