Market volatility means thousands of families may have overpaid Inheritance Tax

Posted on

Thousands of families may be entitled to an Inheritance Tax (IHT) rebate due to stock market volatility. As the government does not automatically refund estates when this happens, many families could be unaware they’ve overpaid.

Overpaying IHT could occur if the value of assets falls between the benefactor passing away and the sale of them. Read on to find out why this affects an IHT bill and what you can do if you’ve overpaid.

When is Inheritance Tax due?

IHT is paid on the estate when someone passes away if the value exceeds certain thresholds.

Usually, there are two key thresholds to consider when calculating if an estate could be liable for IHT:

  1. If the value of the estate is below the nil-rate band, no IHT is due. For 2023/24, the nil-rate band is £325,000 and the government has frozen it until 2027/28.
  2. If the deceased is leaving their main home to direct descendants, such as children or grandchildren, they may also be able to use the residence nil-rate band. For 2023/24, this is £175,000. Again, the residence nil-rate band is frozen until 2027/28.

You can pass on unused allowances to your spouse or civil partner. So, if you’re planning together, you could leave up to £1 million before IHT is due.

Assets that exceed these thresholds could be subject to IHT. The standard IHT rate is 40%, so it can significantly reduce the amount beneficiaries receive.

The number of families reclaiming overpaid Inheritance Tax has increased by 22%

According to a report in the Telegraph, the number of families that have reclaimed overpaid IHT increased by 22% in 2022/23, when compared to a year earlier.

Overpaying can occur because an IHT bill is calculated based on the value of the assets on the date of death. However, the value of assets, such as investments, can change and beneficiaries may sell the assets for less than the original valuation. Yet, families may have already paid an IHT bill based on the original value.

Stock market volatility could mean more families overpaid IHT in the last few years. A family inheriting investments may find they sell the assets for less than the original valuation as the price can change significantly, even in a short period.

Similarly, as experts expect house prices to fall in the near future, more families could find they overpay IHT.

According to the Halifax House Price Index, property prices fell by 2.6% in June 2023 when compared to a year earlier.

Economic challenges and rising interest rates mean some property experts expect the market to fall further. In March 2023, the Office for Budget Responsibility forecast that house prices would fall by 10% during 2023 and 2024.

So, families that inherit property could find the value falls and that they’ve overpaid IHT as a result.

As properties are often among the largest assets inherited, the amount overpaid could be substantial. The Telegraph analysis suggests a family inheriting a home initially valued at £1.2 million that falls by 3.5% by the time it’s sold could have overpaid IHT by £16,800.

If the value of assets falls, the government will not automatically refund the estate – you must reclaim the amount overpaid. So, some families may be unaware they’re entitled to a refund.

How to reclaim overpaid Inheritance Tax

As IHT must be paid within six months of the date of death to avoid incurring interest, some families may pay the bill before they sell assets, or the probate process is complete. It could make it difficult to understand if the figures used to calculate IHT are accurate.

So, if you’ve sold inherited assets, it’s worth reviewing the value at the date of death and comparing it to how much you received when selling them. You can reclaim IHT if you sell:

  • Property within four years of the date of death
  • Qualifying investments within 12 months of the date of death.

If falling values have affected your inheritance, you can fill in a form to recover overpaid IHT.

There is a time limit on submitting a relief form. For property, you must submit the form within seven years of the date of death, and within five years for investments.

One important thing to note is that when you submit a relief form for investments, HMRC will consider all inherited investments – not just those that have fallen in value. So, if some investments have increased in value, the amount you can reclaim may be lower than you expect.

Contact us to learn more about Inheritance Tax

Whether you want to understand if you’ve overpaid IHT or what steps you could take to reduce a potential IHT bill on your estate, please contact us. We can offer advice that’s tailored to you to help you get the most out of your assets.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate Inheritance Tax planning.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes, which cannot be foreseen.

We aim to keep our clients up to date on interesting and relevant financial news.

You can sign-up to receive our monthly newsletter by email, even if you’re not yet a client. Sign-up using the form below.

Client testimonials

I have always found Black Swan to be caring and understanding of my quirky lifestyle. I always feel they try to get me the best returns while respecting my current needs.

Sally Muir

A client since 2011

We would be very happy to recommend the support and service we receive.

Valerie Locks

A client since 2010

I have always been completely useless regarding finance - thankfully our financial adviser is not! I've retired with far more than I ever expected and investments continue to grow safely. So - thank you!

Bernadette Jane Warner

A client since 2000

Very happy with the professional service I have received and feel a lot happier now with my finances put in order.

Martin Field

A client since 2011

Julie Cooper was recommended to me by a work colleague. She has been very helpful, professional and has explained everything well. I would definitely recommend her services to anyone else who are interested in a financial review.

Steven Rooke

A client since 2018

…Service has been first class.

Hugh Fells

A client since 2012

My face to face meetings with Rob Young and Jessica Lyons have always been very open and understandable. My questions have been answered clearly and I have left feeling that my financial matters are in good hands.

Sandra Jack

A client since 2000

[A] safe pair of hands in a complex financial world.

Gary Middlehurst

A client since 2003

A reliable company with good communication skills and good knowledge of the financial markets.

Alan Evetts

A client since 2014

Maureen Pembridge is a long-time trusted advisor to our family. The market might fluctuate but her attention to detail is consistent.

Linda Burnard

A client since 2000

I am pleased to recommend Julie as a trustworthy financial advisor. She explains financial jargon in plain language, and always listens carefully to my particular financial needs and has helped me make the best of my savings.

Carolann Samuels

A client since 2010

I have always been satisfied with the way that Black Swan has handled my account. And I have always found the staff very helpful whenever I need to call the office.

Robert Anthony Matthews

A client since 2012

An excellent personal service from a person I know and trust.

Michael Dalton

A client since 2010

I am getting a very good services from Black Swan, they have got my investments sorted out which was in a bit of a mess.

Roy Jakens

A client since 2012

A good, efficient team providing clear ideas to shape a winning strategy.

Adrian Michael Levenstein

A client since 2011

Black Swan is a company to be trusted, with friendly staff and professional advisors.

David Brian Jennings

A client since 2017

I have been with Black Swan for many years. I have never wished to change anything. They give a good straight forward service.

Martin Barrett Brooks

A client since 2010

Andy Peters has been invaluable in firstly combining several pension pots and then giving excellent investment advice. It has given us a great deal of comfort to know that our financial affairs are in such good hands.

James Guillum Scott

A client since 2014

I find my financial advisor easy to talk to and feel that she understands my lifestyle. She is always available for help when I need her and explains in words that I can understand.

Margaret Ena Glasgow

A client since 2000

Andy is a first rate Director, excellent communicator and leader.

Ross Perry

A client since

Black Swan Financial Planning and Andrew in particular, are very clever at working out how risk averse we are, and coming up with solutions that we feel comfortable with. We are happy in the knowledge that we can continue to enjoy a comfortable retirement. Andrew Peters is a very, very friendly person who is great to chat to and easy to deal with. He explains things very clearly in layman’s terms, and if we still don’t understand, he explains it until we do!

Alan & Jane Dyer

Clients since 2012

We have always found Rob [Young] to be very approachable and knowledgeable. We have every confidence in the advice given and feel comfortable with the decisions we’ve made. There are certain opportunities that we wouldn’t have known about if Rob hadn’t brought them to light, which makes the advice good value for money as far as we’re concerned.

Peter & Pauline O’Halloran

Clients since 2013

Rob [Young] is extremely knowledgeable. I knew nothing about the different types of trusts which will not only secure my income in retirement, but also leave a legacy for my children. I’m glad that I sought his advice when I did.

Sarah Wilson

A client since 2015

I am extremely happy with the service afforded to me by the company and my adviser Julie Cooper.

Geoff Coxell

A client since 2010

My wife and myself have been dealing with Black Swan for a number of years. We have met with different representatives from the company over the years and have found all very helpful in their own way. We met with James [Anderson] a few years ago and found him very helpful and knowledgeable. He keeps in contact with us on a regular basis. We find the Company information very helpful and we feel very secure with our finances.

Andrew Kirchen

A client since 2015

I have always found my adviser to be easy to contact, very professional in his approach, yet friendly and understanding. I have a sense of an experienced company behind him, really on the ball financially and with good standards.

B McBean

A client since 2011

Partner with the most reliable and experienced team of advisers

Enter your details & we'll be in touch to discuss your needs.
Alternatively, contact us directly and speak to a member of the team.

    Subscribe to our newsletter