Britons risk being overcharged inheritance tax if house prices fall

Last week Lloyds Banking Group warned that house prices could fall by as much as a fifth next year due to the hit to mortgage lending amid mounting interest rates. According to Nationwide’s

October House Price Index, house prices fell by 0.9 percent between September and October this year. This was the first monthly fall since July last year and the biggest since June 2020. If

house prices were to fall even further, such as the 20 percent predicted by Lloyds Banking Group, people who are inheriting property from someone who has died could end up paying a lot more

inheritance tax than they may anticipate. This is because, when calculating the value of a deceased person’s estate, HM Revenue and Customs (HMRC) uses the property value at the date of

death and not when it is sold. This means if a property on the date of death is worth £1million, but it is sold several months later at £850,000 if the market price drops by 15 percent, then

a person would have to pay inheritance tax on the value of £1million. This could possibly add tens of thousands of pounds to an inheritance tax bill. READ MORE: RISHI SUNAK PLAYS GAMES WITH

TRIPLE LOCK WHILE PENSIONERS STRUGGLE Inheritance tax is a tax people pay on the estate of someone who has died and the estate is made up of the property, money and possessions of the

person who is deceased. Currently, Britons pay a tax of up to 40 percent on the value of an estate above the current nil rate band threshold of £325,000. However, there is a way that people

can get try and get their money back and this is through HMRC’s IHT38 relief scheme. This little-known scheme allows the value of the sale price to be swapped for the value of the property

at the time of death. DON'T MISS: To apply for this, a person must make a claim using HMRC's IHT38 form which can be found on GOV.UK. On this form, people will need to give

information about the property, how much it was sold for, whom it was sold to, and the sale date. But before going ahead, it is very important to think carefully, because once submitted, a

claim cannot be withdrawn. According to a Freedom of Information (FOI) request by financial advice firm NFU Mutual, almost 3,000 people used HMRC's IHT38 form to claim overpaid

inheritance tax last year. READ MORE: 70 HEALTH CONDITIONS QUALIFY FOR EXTRA £156 A WEEK IN PIP FROM DWP Speaking to the Telegraph, Sean McCann of NFU Mutual explained how he expected this

figure to increase next year when house prices are expected to drop. Mr McCannl said: “There have been more than 22,000 of these reclaims made in the past six tax years, and that was while

the housing market was buoyant. "If house prices start to fall, there are likely to be many more families able to make reclaims that could be worth thousands of pounds.” However, there

is a potential catch. If the value has gone up then you could find you are incurring additional inheritance tax. There are some exceptions to the scheme which people will need to be aware of

before proceeding. The inheritance tax relief does not apply where the difference in the value at date of death and the value at point of sale is less than £1,000 or five percent, whichever

is lower. Also, the sale does not qualify if the property/land goes to a beneficiary of the original estate, or a relative of a beneficiary. The sale must also have been made by the

executor of the estate. Of course, if no inheritance tax was payable on the estate in the first place, so the estate was valued below the nil-rate band, then there can be no inheritance tax

relief through the scheme.