London house prices have dropped so much in value over the past year that anyone who has inherited a property may be due an inheritance tax refund.
The good news is IHT has a trigger just like a footballer’s contract release.
If the trigger is tripped, you can claim a refund – but HM Revenue & Customs won’t tell you if one is due.
IHT rules don’t reveal the magic figure either, but the rule of thumb is the amount is a fall of at least 1% in the property price or £5,000 in the four years after the former owner’s death.
And London house prices are running well ahead of the trigger now.
The latest official data from the Land Registry shows house prices in the capital dropped 4.4% in the year to the end of May 2019.
A year ago, the average house was valued at £478,485. Now, the same property is estimated to be worth £457,451.
How much tax you can save
The difference in IHT charged at 40% on the value of an average property is £1,214 plus interest.
But the bigger the property, the more you can save, according to the Land Registry:
|Property type||May-19||May-18||Difference %|
How the IHT tax break works
The tax break takes account that IHT is paid on the probate value of an estate. IHT is typically calculated and paid within a year of someone’s death.
But selling the assets, like property, can take much longer, and the price realised may be less than the value originally quoted to HMRC.
If a property is sold at a loss against probate value within four years of the former owner’s death, the refund is triggered.
The claim is made by completing and filing HMRC Form IHT38.
This little known tax break can save a family a significant amount of tax and costs nothing to claim.
Similar rules apply if inherited stocks and shares are sold at a loss, but a different form is needed to make a claim.