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Have I Paid Too Much Inheritance Tax?

Families across the UK could be entitled to a rebate of inheritance tax if they inherit properties or share portfolios in the year of coronavirus lockdown.

Inheritance tax (IHT) is charged at 40% on individual estates which exceed the threshold of £325,000 and must be paid within six months from the date of an individual’s death. Married couples and those in civil partnerships are able to combine their tax allowances and use the residential nil rate band if the family home is passed down to their children.

It is believed that the Covid-19 pandemic has caused the biggest fall in stock prices since the 2008 financial crisis.

As part of an estate on which IHT is payable, the Executors are able to apply for inheritance tax refunds on losses made on the sale of inherited shares within 12 months of an individual’s date of death. The relief applies to listed shares, gilts and unit trusts but not to unlisted or shares traded on the Alternative Investment Market.

Following the plunge in the stock market, families could reclaim thousands of pounds in inheritance tax. For example, if you have inherited a £750,000 portfolio of shares when the stock market was at its peak, it is likely to have incurred an IHT bill of £170,000.

If the portfolio has reduced in value to £500,000 during the recent crash, selling the shares within 12 months of the date of death, would lower the IHT bill to £70,000. However, the tax office calculates losses on the basis of the whole share portfolio and if some of the shares have gone up in value from the date of death, this will reduce the amount of IHT that can be reclaimed.

A similar rule applies to land. Here, the period in which the sale may take place is longer – four years from the date of death.

The ability to use these little-known rules depends on the families’ financial circumstances. The danger is when people with limited knowledge of how inheritance tax works decide to deal with the probate themselves and there is no solicitor involved to advise the beneficiaries how they can reclaim substantial amounts of overpaid tax.

Mayo Wynne Baxter is here to help with all aspects of Probate, Trusts and Wills and if you need any assistance, please do not hesitate to contact our Private Client team.