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Reclaiming overpaid Inheritance Tax

Banner Reclaiming overpaid Inheritance Tax

Recent media reports show that £37,000,000,000 is expected to be reclaimed in overpaid Inheritance Tax over the next 5 years. Burnett & Reid LLP’s Private Client specialists explain how it works.

Properties

Executors can reclaim excess Inheritance Tax paid following the sale of property. Refunds are available for properties sold within 4 years of date of death.

If the drop in value between date of death and sale is less than £1,000 or 5% of value, whatever is lower, then you cannot make a claim.

Awareness of this relief and the timescales can be especially important in the current Aberdeen housing market. We are regularly seeing buyers favour ready to move in properties and younger couples buying more new builds, often outside of the city centre, rather than older granite houses in town. This market change can mean executry properties that require work sit on the market for longer and do not reach their initial value.

Being able to reclaim any excess Inheritance Tax paid will offset partially the fall in value. This claim is not automatic so Executors should be ready to progress it following the sale of property.

Shares

With shares and other qualifying investments sold within 12 months of date of death there is an opportunity to claw back any excess Inheritance Tax.

Executors must ensure that they are providing information of all shares sold, not just those sold at a lost.

Capital Gains Tax

An often forgotten tax when it comes to Estates, Capital Gains Tax should be minimised when winding up the Estate. An Estate may pay no Inheritance Tax but be faced with a Capital Gains Tax liability which could have been avoided.

Minimising Capital Gains Tax exposure can be achieved by ensuring accurate professional valuations. Beneficiaries retaining an asset will require an acquisition value, if and when they come to sell, this will be their ‘base cost’. Beneficiaries should keep a note of the costs when they acquired a property and any capital expenditure on property. Acquisition values for shares and other assets should also be retained.

Before selling a property or shareholding the Executors should review whether there has been any increase or decline in value. If an asset has increased in value, it may be better for Executors to formally appoint the assets to beneficiaries so that beneficiaries can utilise their own Capital Gains Tax allowance to reduce any gain on sale. This could also allow the beneficiaries to utilise any losses from the Estate sale to reduce their personal gains.

This is a complex area where early professional advice can help keep taxes down, ensuring that beneficiaries retain more of their inheritance.

The above is a summary of some key points and should not be relied on. Please contact one of the private client team to discuss your situation further.