Inheritance tax receipts have risen by 10 percent year-on-year, hitting £2.6 billion from April to July 2023, according to data released by HMRC today (22/8/23). This is £237 million, or 10 percent, higher than the same period last tax year.

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 people may be selling them for less than the value on which inheritance tax was paid.

As the cost-of-living crisis continues, any overpayments could be detrimental for struggling families who need as much spare cash as possible.

Claiming Back Overpayment

Nicholas Hyett, investment manager at Wealth Club, explained that there is a way to claim back the overpayment if one has been made. He said, “HMRC continues to see its inflows increase, month-after-month and year-after-year. But as house prices start to fall, it’s possible some beneficiaries have paid more inheritance tax than they really should.

“Fortunately, there is a way 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.

Inheritance Tax Thresholds and Exemptions

There’s normally no Inheritance Tax to pay if either the value of the estate is below the £325,000 threshold or if people leave everything above the £325,000 threshold to their spouse, civil partner, a charity, or a community amateur sports club.

Loved ones may need to sell family homes or take on more debt if they need to settle a large IHT bill.

Laura Hayward, tax partner at Evelyn Partners, explained that IHT receipts are likely to continue to rise. The Office of Budget Responsibility has predicted that the amount collected from IHT receipts will grow from £7.2 billion for this tax year to £8.4 billion by 2007/28.

Families may want to take professional tax planning advice to ensure they don’t pay more tax than they need to.

Strategies to Lower Inheritance Tax

Those concerned about inheritance tax should also consider making gifts to family members to lower their bill or setting up a trust.

Ms Hayward said: “Making gifts to family members can be one of the best places to start in reducing or eliminating an IHT bill. Gifts you make are generally not subject to IHT unless you die within seven years. There is also an annual gift allowance of up to £3,000 per tax year, and this will not be subject to IHT even if you do die within seven years.

“Setting up trusts can be a helpful means of passing on assets tax efficiently to the next generation because they help ensure that gifts are used in a responsible way. Trusts can only be accessed at a certain time or for a particular reason.”

Conclusion

The rise in inheritance tax receipts and the potential for overpayment is a concern for many families in the UK. Understanding the rules, exemptions, and strategies for minimising tax is essential. Seeking professional advice and being aware of the available reliefs can help families navigate this complex area of taxation.

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