Inheritance Tax: Some Britons may be able to reclaim thousands of pounds amid tax freeze

Inheritance tax: Expert gives tips on to legally avoid fees

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The Chancellor of the Exchequer Rishi Sunak has frozen a number of tax-free allowances for five years, with this move set to result in HMRC collecting an extra £985million in Inheritance Tax specifically.

Rather than announcing a wealth of increases to tax rates, the Chancellor has opted to increase Government revenue via fiscal drag.

In terms of Inheritance Tax specifically, Mr Sunak announced a freeze of the nil-rate band at £325,000 and residence nil-rate band at £175,000 until 2026.

However, financial advisers NFU Mutual have highlighted a number of to beat the freeze.

They’ve also pointed out Inheritance Tax can be reclaimed if a property is sold by the executors within four years of death for less than it was valued.

It comes as the Office of Budget Responsibility (OBR) predicts house prices will decrease next year.

It’s predicted house prices will increase by 5.7 percent this year before falling back 1.7 percent next year.

Sean McCann, Chartered Financial Planner at NFU Mutual, said: “Freezing the nil-rate band and residence nil-rate band means more and more people will fall into the Inheritance Tax net over the next five years.

“The Office of Budget Responsibility has also forecast house prices to significantly increase this year before decreasing next year.

“If house prices do go down next year, this could create a wave of families reclaiming overpaid inheritance tax on property.”

, what are some of the ways to beat the Inheritance Tax freeze?

According to Mr McCann, several steps can be taken by those worried about falling into the IHT net over the next five years relate to a person’s pension pots.

Pension contributions

“As well as benefiting from tax relief when you put money into your pension, any money left in your fund on death will normally be free from Inheritance Tax,” Mr McCann said.

“This could allow you shelter up to an additional £1million plus from Inheritance Tax.”

Pension and retirement

Mr McCann said: “Although it may sound counter intuitive, for those that can afford to, pensions should be one of the last things you spend in retirement.

“Using money held in ISAs and other investments which are subject to Inheritance Tax first allows you to preserve more of your pension fund which can normally be left free of Inheritance Tax.”


“Any money you give away on a regular basis from your income that doesn’t impact your normal standard of living is immediately exempt from inheritance tax, even if you die within seven years,” commented Mr McCann.

“This exemption is claimed after death, so it’s important to keep records of your income, expenditure and gifts.”

Spouse’s pension

Mr McCann said: “The Chancellor has frozen the pension lifetime allowance at just over £1.07million, in a move expected to raise just under £1billion over the next five years.

“If you’re nearing that limit, it can make sense to ensure your spouse or civil partner is maximising their pension to take advantage of their £1.07million Lifetime allowance, so that as a family you’re making full use of the inheritance tax protection available.”

Overpaid Inheritance Tax

“Inheritance tax is based on the values at the date of death,” explained Mr McCann.

“If the executors sell property at a lower value within four years, they can make a reclaim.

“Inheritance Tax is charged at 40 percent so if a property were to fall in value by £10,000 this could mean up to £4,000 could be reclaimed. Small percentage falls in property prices can lead to significant amounts of tax being reclaimed.

“Families can also reclaim Inheritance Tax on qualifying shares and investments sold at a lower value in the 12 months after death.

“However, all the shares sold by the executor are aggregated, so if some have gone up in value this will reduce the amount of inheritance tax that can be reclaimed.

“It can be better for the executors to shares that have gone up in value direct to the family, only selling the shares that have fallen to maximise the amount of tax that can be reclaimed.

“Families are becoming increasingly aware they can reclaim overpaid inheritance tax, and in 2020 the number who did reached a six-year peak.”

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