When and how to claim back inheritance tax paid to the UK taxman

If you’ve recently moved overseas after inheriting a London property, you may be in for a pleasant financial surprise.

British expats as well as UK residents who’ve inherited property may not be aware that, as London’s property prices have lost a considerable amount of value over the past year, they may now be entitled to claim an inheritance tax refund. The reason for this is often not understood, but IHT has a trigger which kicks in should property prices fall below a certain level during the four years following the original owner’s demise.

Unsurprisingly, HM Revenue and Customs don’t rush to inform you they owe you money, and don’t reveal the exact figure after which you can claim. However, the magic trigger cuts in at a fall of either at least one per cent of the property’s selling price or £5,000. Right now, London house prices are well ahead of the trigger point and still falling. A recent data release from the Land Registry office revealed house prices in the capital fell in the year to the end of last May by 4.4 per cent, meaning a home valued at, say, £478,485 is now worth £457,451. Charged at 40 per cent of the valuation of an inherited house, the more expensive your inheritance is on valuation, the more tax you can save.

For those unsure of how IHT works, it’s due on the probated value of the deceased person’s entire estate, calculated and paid within 12 months of the death. Obviously, the selling of effects and especially of property can take longer than one year, and the amount eventually realised could well be less than the IHT total based on value and paid to HMRC. Simply put, should a property be sold at less than its probate value within the stipulated four years, HMRC owes its owner money!

Making a claim involves filling in and filing the HMRC IHT38 form, with a few simple calculations saving a family a respectable sum already paid in tax, and it costs nothing to make the claim. For those British expats and citizens who also inherited shares or stock, selling these at a loss triggers a similar refund, with a different form simply needing to be filled in and filed.