Claiming inheritance tax relief after a property sale

by Iain Mason

Published on 26th January 2021

If you inherited a property or land and then go on to sell it, you may be entitled to claim inheritance tax relief.

It’s one of the less well known elements of the rather complicated inheritance tax system, and it works like this.

If a property, or land, is sold within four years of the date of the death of the person, and is sold for less than it was valued at when the person died, then relief on inheritance tax may be available.

In a nutshell, the value of the sale price is swapped for its value at the time of death.

However, there is a potential catch. If the value has gone up then you could find you are incurring additional inheritance tax.

There are some exceptions. Inheritance tax relief does not apply where the difference in the value at date of death and the value at point of sale is less than £1,000 or 5 per cent (whichever is lower).

Also, the sale does not qualify if the property/land goes to a beneficiary of the original estate, or a relative of a beneficiary.

Of course, if no inheritance tax was payable on the estate in the first place, then there can be no inheritance tax relief.

So assuming inheritance tax relief might be available, who can claim it?

In general, this will be the person who paid, or had the responsibility to pay, the inheritance tax on the estate.

How is a claim for inheritance tax relief made?

The claim is made by to HMRC using form IHT38, on which you give information about the property, how much it was sold for, to whom and the sale date etc.

But before going ahead, it is very important to think carefully, because once submitted a claim cannot be withdrawn. With inheritance tax levied at 40 per cent, on large properties or parcels of land, significant sums of money may be at stake.

For more advice on estate planning, inheritance tax, wills and probate, please get in touch with our Swindon legal team.

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