Could you claim back overpaid inheritance tax?
The taxman continues to rake in record amounts from inheritance tax (IHT) as property prices rise and tax thresholds remain frozen, but many families are unaware that they may be entitled to reclaim overpaid IHT.
Inheritance tax receipts reached £1.5 billion in the first two months of the current tax year, according to HMRC. This is £98 million higher than in the same period the previous tax year. Last tax year, inheritance tax raised a total of £8.2 billion for HMRC – an 8.5 % increase on the preceding year.
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Inheritance tax is usually payable at a rate of 40% on the value of your estate that is above £325,000, although anything left to a spouse or partner is exempt. There is also a £175,000 ‘family home allowance’ which can be used against the value of your property if you leave it to your children or grandchildren.
Craig Rickman, personal finance expert at interactive investor, said: “Keeping the nil-rate-band frozen at £325,000 since 2009 is a core reason why inheritance tax receipts are increasing year on year, as rising asset prices are tipping more estates into IHT territory.
“The introduction of the residence nil rate band in 2017 beefed up the tax-free threshold for many homeowners, but not only has this allowance not budged for five years, it’s fiendishly complex and in some areas arguably unfair. Unless you leave your family home to direct descendants, such as children and grandchildren, you don’t qualify for the residence nil rate band, penalising childless couples.”
Inheritance tax is based on the value of an estate at the time of death and must be paid within six months. If property or shares are later sold for less than their probate value, families can reclaim the overpaid tax from HMRC—but only if they proactively submit a claim. Property sales that occur within four years of the date of death may qualify for a reclaim, and for shares or other qualifying investments, the window is 12 months. To make a claim, executors must submit forms IHT38 (for property) or IHT35 (for shares) to HMRC. Both forms are available at GOV.UK.
Free guide to saving Inheritance Tax
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A Freedom of Information (FoI) made by financial advisers NFU Mutual shows that 12,915 inheritance tax reclaims were made on the sale of property in the three tax years between April 2022 and April 2025. There have been a further 5,096 reclaims where executors have sold shares or other qualifying investments following a fall in value.
Sean McCann, chartered financial planner at NFU Mutual, said: “A large inheritance tax bill can be a nasty shock for grieving families. These figures show that more and more people are waking up to the possibility that they could reclaim overpaid inheritance tax.
“Considering the buoyant housing market, it’s surprising to see more than 12,915 reclaims have been made on the sale of property in the last three years. In some cases, this will have been a result of property having been overvalued on the inheritance tax return or because of deterioration of the property between the death and subsequent sale.
Reclaims for inheritance tax on investments typically occurs where executors have sold shares or other qualifying investments following a fall in value.
Mr McCann said; “If you are reclaiming overpaid IHT following a fall in the value of shares or investments, all qualifying investments sold by the executor in the 12 months following death must be included in the claim, not just those that have fallen in value. If some have increased in value, this will reduce the amount of inheritance tax that can be reclaimed.
“In these circumstances, it may be more advantageous for the executors to pass the shares or investments that have increased in value direct to the beneficiaries rather than sell them. This means you make a claim only for those shares that have fallen in value, ensuring you maximise the benefit.”
Inheritance tax and estate planning can be extremely complicated, so it’s worth thinking about getting expert help if you’re unsure whether you could claim any tax back, or if you’re looking for ways to reduce any potential liability.