Have you overpaid your inheritance tax bill?

Probate is complicated and because of the associated costs it can be tempting to try and do it yourself. However, we find in most cases, people pay too much tax because they are not claiming the reliefs available to them.

As it stands

When you die, you can currently pass on £325,000 worth of assets tax-free before inheritance tax (IHT) becomes payable at 40% on the remainder of the estate. If you are passing a main residence to a direct relative, the rate is £500,000 - and if you’re married or in a civil partnership, this amount tips £1m, which you can read more about in our previous blog here (link to: https://www.downslaw.co.uk/blog/inheritance-tax-whats-changing-and-how-can-you-save-thousands-of-pounds/).

Don’t overpay

However, IHT is not payable when passing an estate to a surviving spouse or civil partner, and this includes any unused allowances too. It is only when they pass away IHT becomes payable - and this can be an area where calculations go wrong.

What is owed is calculated by perceived value, which can be difficult for example if a property has been owned for a number of years, because that exact value could be difficult to determine. IHT is due up front, based on that valuation, but if the property isn’t sold until some years later, say for a lesser amount than it was valued, you may have overpaid IHT.

It works the other way too

Of course, it can work the other way. According to an article in the Times earlier this year, HMRC pursued families for more than £326 million in underpaid IHT in 2022. Many people slip up because, just as they can overvalue an estate, it’s easy to undervalue it too.

But, don’t think it goes unnoticed, as it is a lucrative tax for the Treasury. According to NFU Mutual, the total paid in IHT in 2021-2022 was £6.1 billion from £5.4 billion the year before.

As the £325,000 threshold has not increased since 2009, property prices are soaring and therefore so are IHT payments. It was well worth the 4,258 investigations in 2021/2022 to recover that £326 million of unpaid tax from families. It is just not worth the risk.

We can help

It can be tempting to try and avoid costs by trying to sort probate by yourself, but solicitors can help you claim any tax relief needed, as well as advise on areas where you may not need to pay IHT.

Plus, it can be devastating if the taxes are not dealt with properly. Executors of wills can be held personally liable for errors or underpayments of tax - and HMRC can pursue historic claims going back years.

If you would like some advice relating to probate, wills or Lasting Powers of Attorney, contact Downs Solicitors to see how we can help.