Inheritance tax refunds: how to claim money back if asset prices fall
If you pay too much inheritance tax because the value of an inherited asset falls in price, you could be eligible for a refund.
The number of estates claiming money back due to overpaid inheritance tax (IHT) for losses on property more than doubled last year.
Families that reclaimed overpaid IHT for losses on property sales surged from 5,070 in 2024/25 to 10,550 in 2025/26, according to new Freedom of Information (FOI) figures.
It comes after a major slowdown in house prices, particularly in London and the South East, where estates are more likely to have an IHT liability due to higher property values.
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The latest data from HMRC shows 55% of the IHT taken in England in 2023/24 came from estates in these two regions.
Sean McCann, chartered financial planner at insurance firm NFU Mutual, who obtained the figures, said: “These figures show that more people are waking up to the possibility that they could reclaim overpaid inheritance tax.
“While the fall in property prices in London will have contributed to the increase in reclaims, in many cases, it will be the result of property having been overvalued on the inheritance tax return or because of deterioration of the property between the death and subsequent sale.”
Why you might be due an inheritance tax refund
Someone’s estate is valued for IHT purposes on the basis of what it was worth on the day they died. If IHT is owed, it must be paid within six months.
But, if assets within the estate are later sold for less than that value, you may be able to claim a tax refund.
For the sale of property, the time limit is four years. You can also claim a refund on the loss of value on shares, but the time limit is 12 months.
The sale of the property and any reclaim for tax paid must be done by the executors of the estate.
The loss must equate to more than £1,000 or 5% of the valuation at death, whichever is lower. And a refund is also not available if the sale was made to a beneficiary or one of their relatives.
Interest is typically paid by HMRC on the overpaid amount and is usually calculated from the date the overpayment occurred until the date the repayment is issued by HMRC.
How to calculate an inheritance tax refund on property
Here’s an illustration of how to calculate your IHT refund:
Your estate, which in this instance consists of just a property, is valued at £500,000 on your death. You have never married, don’t have any children and you have made no lifetime gifts.
In your will, you leave your property to a friend. This means that only the nil-rate band is available when calculating the estate’s IHT liability, which is currently £325,000 charged at 0%.
The value of your estate that exceeds this sum will attract 40% inheritance tax, which means the estate has an IHT liability of £70,000 to pay (40% tax applied on £175,000).
Your property ultimately sells for £400,000, and contracts for sale are exchanged within four years of the date of death. This means the estate’s IHT liability is £30,000 (40% tax applied on £75,000), and so a £40,000 refund is payable.
How to claim an inheritance tax refund
It is your responsibility to proactively claim a refund from HMRC.
Inheritance tax is also refunded on investment losses, but only if you sell for a lower value within the first year after the death of a relative.
You claim an IHT refund on property or land by filling in the IHT38 form from Gov.uk.
You’ll be asked questions such as the date of the sale, gross sale proceeds, the name of the buyers and whether you sold it for less than the best price that you could have achieved.
For shares, you need to use form IHT35 to claim relief when you sell ‘qualifying investments’ that were part of the deceased's estate at a loss within 12 months of the date of death.
From the point of submission of form IHT38, refunds can take approximately three to nine months to be processed and paid by HMRC.
How can I maximise my inheritance tax refund?
There are ways families can maximise how much inheritance tax they reclaim.
McCann explained: “If you are reclaiming overpaid IHT following a fall in the value of shares or investments, all qualifying investments sold by the executor in the 12 months following death must be included in the claim, not just those that have fallen in value. If some have increased in value, this will reduce the amount of inheritance tax that can be reclaimed.
“In these circumstances, it may be more advantageous for the executors to pass the shares or investments that have increased in value directly to the beneficiaries rather than sell them. This means you make a claim only for those shares that have fallen in value, ensuring you maximise the benefit.
Will you be able to claim an inheritance tax refund on pensions from April 2027?
Inheritance tax will apply to unused pensions from April 2027, as announced in the 2024 Autumn Budget.
The change is expected to increase the average IHT bill by £34,000, dragging 10,500 more estates into paying the tax.
In a technical note, the government confirmed executors of wills will not be able to apply for refunds on the loss of value in unused pensions.
This is because, it says: “The member is not treated as owning the pension’s assets.”
