How to Claim an Inheritance Tax Refund When Asset Prices Fall

Most people think of Inheritance Tax (IHT) as something you pay and then forget about. But what if you’ve paid too much? What if the house or shares you inherited dropped in value before you managed to sell them? The good news is, you might be able to get some of that money back — if you know how to ask for it.

Over the past three years, families in the UK have filed more than 18,000 claims to reclaim overpaid Inheritance Tax, according to a Freedom of Information request made by NFU Mutual. More than two-thirds of those refunds (around 13,000) were related to property sales.

That’s a lot of money potentially left on the table. In today’s property market, with falling house prices and ongoing financial uncertainty, the number of eligible claims is likely to increase.

So, how does reclaiming Inheritance Tax work? Who qualifies? And how do you go about making that claim?

When Is Inheritance Tax Payable?

Inheritance Tax is due when someone’s estate exceeds the tax-free thresholds set by the government. Everyone has a nil-rate band of £325,000. Anything above can be taxed at 40%.

There’s also an extra allowance, the “residence nil-rate band”, worth £175,000 if the deceased leaves their home to children or grandchildren. That means an individual can pass on up to £500,000 tax-free. For couples, this can stretch to £1 million, assuming everything is left to the surviving partner first.

These thresholds have been frozen since 2009 and are expected to remain unchanged until 2030. With property prices and asset values rising (at least until recently), more estates are being dragged into the IHT net — sometimes unexpectedly.

The government collected a record £8.2 billion in IHT in the 2024/25 tax year. That’s £800 million more than the previous year. And in May 2025 alone, HMRC pulled in £1.5 billion — a 7% increase on the same month last year.

Why You Might Be Due an Inheritance Tax Refund

When someone dies, their estate is valued as of the date of death. That value determines the Inheritance Tax owed. But if shares or property are sold later for less than their initial valuation, the tax bill may have been calculated too high.

And that’s where the opportunity for a refund comes in.

Let’s say a house was valued at £500,000 at the time of death. The estate paid Inheritance Tax based on that value. But a year later, the property is sold for £400,000 due to a market dip or deterioration in condition. That’s a £100,000 drop in value and a £40,000 overpayment in tax.

HMRC won’t automatically refund that money. You have to ask for it.

Recent Market Trends Help Make the Refund Case

House prices have been wobbling again. UK house prices fell 0.8% in June 2025, the biggest monthly drop since early 2023. That followed a stamp duty hike in April, which cooled demand and pushed prices lower.

Looking back two years, mortgage rate hikes triggered a similar slump in property values. Many families now find themselves selling inherited homes for less than their original probate valuation.

Data shows that property-related IHT refund claims rose 65% between the 2022/23 and 2024/25 tax years. Clearly, more people are waking up to the fact that they could claw back some of that hefty tax bill.

What Other Reasons Could Qualify You for the IHT Refund

Besides falling prices, you could be eligible for a refund if:

• The property was overvalued during probate
• The condition of the home deteriorated between the date of death and the sale
• The sale method (say, auction versus private sale) affected the final price

Refunds aren’t just for property either. Shares and qualifying investments are also eligible if sold at a loss within 12 months of death. HMRC received more than 5,000 refund requests for share sales over the past three years.

How to Know If You Qualify

To claim a refund on a property sale, several conditions must be met:

• The property must be sold within four years of the date of death
• The sale must be made by the executor, not by a beneficiary
• The sale price must be at least £1,000 less, or 5% lower, than the probate value (whichever is smaller)
• The buyer cannot be a beneficiary or their relative

For shares, the rules are slightly different:

• The shares must be sold within 12 months of death
• All qualifying investments sold in that time must be included in the claim, both gains and losses

How to Calculate Your IHT Refund

Let’s walk through a basic example.

Imagine an estate that includes only a house worth £500,000. The deceased never married and had no children, so only the £325,000 nil-rate band applies. That means £175,000 is taxable at 40%, resulting in a £70,000 Inheritance Tax bill.

But the property sells for £400,000. The taxable portion is now just £75,000, which means the IHT bill should have been £30,000. That’s a £40,000 overpayment and the estate is due a refund.

HMRC also pays interest on overpaid tax, starting from the date of overpayment until the refund is processed.

How to Make a Claim

You’ll need to fill out form IHT38 for property-related refunds. This is available on the GOV.UK website.

You’ll be asked for:

• Sale date and proceeds
• Buyer’s name
• Confirmation that the sale price reflected the market value
• Whether the buyer was a relative of the deceased

For shares, use form IHT35, provided the sale meets the 12-month rule.

How Long Does It Take?

Refunds typically take between three to nine months to process, depending on their complexity and whether HMRC requests additional information.

Remember, the clock is ticking. You’ve got four years from the date of death to file a property-related refund claim and just one year for shares.

Tips to Maximise Your Refund

There’s a smart way to play this if you’re dealing with shares or other investments.

If some shares have gone up and others have fallen, consider passing the winners directly to the beneficiaries rather than selling them. That way, only the losses count in your claim and you maximise the refund.

In other words, don’t let gains cancel out your losses.

Conclusion

Losing a loved one is hard enough without the added stress of taxes. But if you’ve overpaid Inheritance Tax because the value of a house or shares has dropped, you may be entitled to get some of that money back.

It requires a bit of paperwork and a fair amount of patience, but the rewards can be substantial. As property markets fluctuate and tax thresholds stay frozen, knowing your rights, and acting on them, could save you thousands.

So, if you’ve recently sold an inherited home or liquidated investments at a loss, don’t let that refund slip through the cracks. HMRC won’t come knocking—you have to go get it.