Families missing out on inheritance tax loophole

taxman inheritance tax loophole

Only around 1,600 taxpayers a year make use of a rule that allows them to cut inheritance tax bills, new figures show, raising concerns that thousands more people could be paying too much tax.

This year, many bereaved people will stand to inherit investments that have plummeted in value after turmoil in global stock markets.

So-called IHT “share loss relief” enables those who inherit shares to claim a tax rebate when they sell the investments at a loss.

However, few people reclaim the overpaid tax, according to data released under a Freedom of Information request by Boodle Hatfield, a law firm. Between 2014 and 2019, the latest year for which data is available, an average of just 1,640 taxpayers a year applied for refunds, the firm discovered.

HMRC does not actively inform people who inherit shares if they are entitled to IHT share loss relief and Laura Suter, of the investment platform AJ Bell, said many executors administering a relative’s estate without professional help “won’t be aware” it exists.

She said: “This is yet another example of complicated government tax policy and endless form-filling meaning that grieving families are paying more tax than they need to.”

As a result of stock market volatility, Boodle Hatfield said it expected the number of claimants for IHT share loss relief to rise in the coming year.

But before applying for a refund, people should first check whether they are eligible.

Only those liable to pay IHT on the estate can make a claim – usually the executor – and not all investments count. They must be shares and securities quoted on the stock exchange (not including Aim), British Government bonds or holdings in unit trusts.