Thousands overpay inheritance tax with many not knowing they can claim back cash

However, should a family sell property or investments for less than its initial valuation, then they could have ended up overpaying death duties.

With rising mortgages pressuring families to sell homes at lower prices, and global stock markets falling, it is assumed that more families will have overpaid IHT.

More than 5,000 families claimed a refund last year, according to data obtained by a Freedom of Information request.

Where the Government does not automatically refund the estate, there are fears that the number of families eligible could be much higher.

Sean McCann of advice firm NFU Mutual, which obtained the figures, told the Telegraph: “Although thousands of families reclaim overpaid inheritance tax every year, it’s likely that many miss out.”

McCann predicts that the number of families overpaying IHT “will rocket this year,” if house prices continue to fall.

Within the first three months of 2023 alone, more than a thousand families had claimed an IHT refund.

Last year, more than 3,000 families reclaimed overpaid IHT after their property fell in value.

The housing market is being hit by surging mortgage costs, with average two-year fixes jumping to a 15-year high of 6.7% as interest rates keep rising to combat stubbornly high inflation.

British homeowners looking to sell their property are being pressured by mortgage rate hikes into accepting low ball offers.

More than two in five (42 per cent) house sellers are accepting decreases of at least five per cent on the asking price, the highest level since 2018, according to the Zoopla House Price Index.

Nearly one in six (15 per cent) sellers are accepting a discount of more than 10 per cent on the initial asking price, while buyers are pushing for an average reduction of 3.8 per cent.

Rob Dix from the Property Hub, said: "In real-terms, property prices in the UK have already fallen by 12.5%, which means prices are actually back to where they were in 2014.

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Meanwhile, the number of families reclaiming IHT for investments rose from 1,299 to 2,082 last year, as market downturns caused share portfolios to depreciate.

IHT must be paid within six months of the date of death, and includes all investments in the twelve months after the date of death.

All investments must be included in the reclaim, not just those that have depreciated in value.

Meanwhile, executors can reclaim overpaid IHT on properties sold within four years of the date of death.

For example, a family inheriting a home with an initial valuation of £1.2million, but which had depreciated in price by 3.5 per cent by the time it was sold, would be owed £16,800 in IHT, according to NFU Mutual.

Estates of spouses and civil partners can pass on up to £1million without any IHT liability.

Number 10 has discussed abolishing IHT to appeal to voters, which would carry an estimated cost to the Treasury of £7billion a year, according to the Times.

A source familiar with the discussions told the paper: “It’s about being an aspirational country. You work hard, play hard and pass on your wealth. It’s a live discussion.”