House prices in the UK fell by 3.7% between June and July 2021, while in England they were down 4.5%.
This means that, if those properties were part of an inherited estate, on which families paid inheritance tax (IHT), they may be eligible for a refund, said NFU Mutual.
This is because IHT is calculated on the value of the property at death; so, if the value falls between the date of death and the time of sale, people can reclaim the tax paid on the difference.
A Freedom of Information (FOI) request by NFU Mutual discovered that 3,630 families have reclaimed IHT paid on properties in this exact way in the 2020-21 financial year.
But the insurer believes that, as property prices slump, the number could grow.
House values have also been going down due to winding up of the Stamp Duty Land Tax holiday, with rates returning to their original levels from 1 October 2021.
Additionally, more people are likely to be caught in the IHT net as allowances are currently frozen until 2026.
‘Save thousands of pounds’
Sean McCann, chartered financial planner at NFU Mutual, said: “With house prices starting to dip, it’s important families are aware of this ability to reclaim inheritance tax that could save them thousands of pounds.
“IHT is assessed on the value of a person’s estate on the date of death and the tax must normally be paid within six months. But if property is sold within four years of death for a lower price, the overpaid inheritance tax can be reclaimed.
“The number of these reclaims dipped last year (6,775 in 2019-20) due to the buoyant housing market, but are likely to increase if house prices continue to fall.
“With inheritance tax allowances frozen for the next five years, more and more families are being caught in the net. It’s important to take advice to ensure your family doesn’t pay more tax than they need to.”
