Inheritance tax warning: Britons risk major over-payments as death levy bill set to 'rocket'
Families are warned they face overpaying thousands of pounds in inheritance tax due to falling house prices
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Families are warned they face overpaying thousands of pounds in inheritance tax due to falling house prices, financial advisers claim.
Britons overpaying the 40 per cent duty is expected to “rocket” this year, as HM Revenue & Customs calculates tax by using the property value at the date of death, not when it is sold.
Bereaved families are more at risk of paying over the odds as buyers make offers below estate agent valuations and house prices fall.
Last week, lender Halifax said house prices recorded their first annual drop since 2012 in April - dropping one per cent year-on-year.
Bereaved families are more at risk of paying over the odds as buyers make offers below estate agent valuations and house prices fall
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Property experts have suggested house price will drop further due to inflation which is expected to keep interest rates high and increase the cost of borrowing.
A couple who leave a £1.2m house to their children would normally ring up an inheritance tax bill of £80,000.
However, if the value of the home dropped by 4.4 per cent – as economists have forecast this year – then the family could reclaim more than £20,000 in overpaid death duties.
Overpayments have be reclaimed, but there is a four-year window after which claims are rejected.
Claims are set to increase as the property market enters a downturn and probate registry delays cause house sales to take longer.
“These reclaim figures will rocket this year if house prices continue to decrease," Sean McCann of advisers NFU Mutual told the Telegraph.
On Friday, former chancellor George Osborne said the tax-free threshold for the death duty should be increased with inflation.
It means thousands more will be forced to pay inheritance tax in the coming years due to the “fiscal drag” of the frozen threshold, forecasts from the Office for Budget Responsibility show.
Claims are set to increase as the property market enters a downturn and probate registry delays cause house sales to take longer
PAA Government spokesman said: “More than 93pc of estates aren’t expected to pay any inheritance tax in the coming years.
"However the tax still raises more than £7 billion a year to help fund public services like the NHS and schools.
“Where a property has dropped in value prior to sale, beneficiaries are protected by ‘Loss on Sale Relief’ which ensures they do not overpay inheritance tax.”