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Claiming an IHT Refund if Your Property Price Has Dropped

by guildy | 25 Jul 2019 | Guidance, Primary, Tax (England), Tax (Wales)

Claims should be made on HMRC’s form IHT38

If you have recently inherited property to rent in London, a little known tax break could save more than a thousand pounds in Inheritance Tax.

The latest official property price data from the Land Registry shows house values in the capital plunged by 4.4% in the year to the end of May 2019.

That took the average London house price down from £478,485 a year ago to £457,451 now – and they are expected to fall farther.

Inheritance Tax paid at 40% on the higher valuation would be £191,394, but on the lower valuation, the new owner would save £1,214 – and as a bonus, HM Revenue & Customs must pay interest on the money repaid as well.

The saving comes from a tax rule that is not widely publicised that allows an estate to reclaim Inheritance Tax on land and property – including a home – if the asset is sold at a loss within four years of the date of death of the former owner.

Selling at a loss means when the selling price is lower than the valuation put on the home when estimating how much the estate was worth at probate.

The rules say Inheritance Tax should generally be paid within 12 months of someone’s death, but a property may be sold some time later – and by that time if house prices have fallen, too much tax has been paid.

As a rule of thumb, the actual sale price must be 1% or £5,000 lower than the property value on which Inheritance Tax was calculated to qualify for a refund.

Current Land Registry figures put London average home prices at 95% of May 2018 values and slip comfortably into the Inheritance Tax refund criteria.

Claims should be made on HMRC’s form IHT38

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