IHT Overpayment Refund UK (2026): How to Reclaim Inheritance Tax Paid

Yes — there are several statutory and administrative routes by which inheritance tax can be reclaimed after payment. The most common are: (1) Loss on sale of quoted shares or unit trusts (IHTA 1984 ss.178–189): if quoted securities (shares listed on a recognised stock exchange, unit trusts, OEICs) fall in value and are sold for less than their probate value within 12 months of the date of death, the executor can claim loss-on-sale relief. The relief substitutes the lower sale proceeds for the original probate value, reducing the IHT liability — and triggering a repayment if IHT was already paid based on the higher probate value. The claim must be made within 5 years 7 months of the date of death (IHTA 1984 s.241). Important restriction: this relief applies to the whole portfolio of qualifying investments sold in the 12-month period — not just selected losses. If the total portfolio sold shows a gain overall, no relief is available; (2) Loss on sale of land and buildings (IHTA 1984 ss.190–198): if a property is sold for less than its probate value within 4 years of the date of death (extended to 4 years for sales completed within 3 years of death), the executor can elect to substitute the actual sale proceeds for the original probate value. This claim is made on Form IHT38 (land). The election must include all land and property sold within the qualifying period that shows a loss — you cannot cherry-pick individual properties; (3) Deed of variation (IHTA 1984 s.142): a valid deed of variation (executed within 2 years of the date of death) can redirect assets to charity (attracting the charity exemption) or restructure the estate to make better use of nil-rate bands, reducing IHT. If IHT was paid based on the original distribution, a correction account showing the lower post-variation liability generates a repayment; (4) Post-grant discovered liabilities: if a genuine estate liability was not known at the time of the original IHT400 submission and comes to light after the grant is issued (for example, a disputed debt that is confirmed, an undiscovered loan, or care home arrears), a correction account reduces the taxable estate and triggers a repayment; (5) HMRC calculation errors: if HMRC has miscalculated the IHT or applied the wrong rate, the executor can raise the error with HMRC Inheritance Tax team.

The quoted securities loss-on-sale relief (IHTA 1984 ss.178–189) is one of the most valuable IHT reclaim mechanisms for estates that hold shares: (1) What qualifies: shares and securities quoted on a recognised stock exchange (London Stock Exchange main market and AIM); unit trusts and OEICs that are publicly quoted; gilts and bonds. Unquoted shares (private company shares), shares in AIM companies that qualified for Business Property Relief, and shares held in nominee accounts but not publicly quoted do not qualify; (2) The 12-month rule: the qualifying investments must be sold within 12 months of the date of death. Sales at any price below the probate value (date-of-death mid-market price, or average of bid/offer) qualify for the relief; (3) Portfolio-wide calculation: the relief takes into account ALL qualifying investments sold in the 12-month period — not just selected losers. The total proceeds of all sales are compared to the total probate values of all sales. If the portfolio as a whole shows net proceeds below probate values, the excess of probate value over proceeds is deducted from the estate value. If some investments have risen (and those rises exceed the losses on others), the net relief may be nil or reduced; (4) Who can make the claim: the personal representative or any legatee who has taken a transfer of the investments and sold them (IHTA 1984 s.179); (5) Time limit: claim by submitting a corrective account (IHT35 form) to HMRC Inheritance Tax within 5 years 7 months of the date of death (the standard IHT claim limitation period); (6) Practical example: estate includes a share portfolio valued at £200,000 at date of death. IHT was paid based on this. Shares are sold 6 months later for £160,000. The relief allows £40,000 to be deducted from the taxable estate. At 40%, this generates a £16,000 IHT refund plus interest.

The land and buildings loss-on-sale relief (IHTA 1984 ss.190–198) operates similarly to the shares relief but has different time limits and mechanics: (1) What qualifies: any interest in land or buildings in the UK that was included in the estate for IHT purposes at the date-of-death open market value; (2) Sale within 4 years: the property must be sold by the personal representative (or a beneficiary to whom the property has been assented, subject to conditions) within 4 years of the date of death. The sale must be at arm's length to an unconnected purchaser; (3) Election requirement: the personal representative must formally elect to use the relief by submitting IHT Form IHT38 to HMRC Inheritance Tax. The election must be made within the later of 7 years of the date of death or 5 years of the 31 January following the date of death; (4) Portfolio-wide: like the shares relief, if multiple properties are sold at a loss, all such losses are aggregated. If one property is sold at a gain within the same 4-year period, that gain offsets the losses. You cannot selectively apply the relief to properties that show losses while ignoring those that show gains; (5) Related property restriction: special care is needed where the property was valued using the 'related property' rules (IHTA 1984 s.161) — for example, where two spouses each own a share that, combined, command a premium. The related property value may have been used for IHT but the lower fractional interest value may be obtainable on sale; (6) Practical trigger: where probate valuations prove higher than achievable sale prices in a falling market, executors should routinely consider whether an IHT38 election is beneficial before distributing the estate and closing the estate account.

A deed of variation (executed under IHTA 1984 s.142) can be used to redirect inheritance from the original beneficiaries to other persons or to charity — and if it is done in a way that reduces IHT, the estate is entitled to a refund of the overpaid tax: (1) Charitable redirection: if assets are redirected to a qualifying charity by deed of variation, the charity exemption (IHTA 1984 s.23) applies. If IHT was originally paid on those assets, a repayment arises. This is one of the most tax-efficient uses of a deed of variation; (2) Reduced rate charitable giving: if a deed of variation takes the charitable giving above 10% of the net estate, the reduced 36% IHT rate (rather than 40%) may apply to the entire taxable estate (IHTA 1984 s.7A) — producing a refund on the remainder of the estate; (3) Use of unused nil-rate band: a variation can redirect assets to skip a generation or route assets differently so that unused NRB or RNRB is more fully utilised. For example, if the original will left everything to a surviving spouse (exempt, but using up the RNRB on the second death), a variation could redirect some assets to children directly and use the deceased's own NRB and RNRB immediately; (4) Requirements for a valid deed: the deed must be in writing; signed by the affected beneficiaries (those giving up their entitlement); made within 2 years of the date of death; contain a statement that the parties intend it to have effect for IHT and CGT purposes (separate elections can be made); (5) Corrective account: after the deed is executed, the personal representative submits a corrective account (typically IHT35) to HMRC Inheritance Tax showing the revised estate structure and requesting a refund of overpaid IHT.

The practical process for claiming an IHT overpayment refund: (1) Identify the ground for the claim: confirm whether the refund arises from loss on sale of shares (IHTA 1984 s.178), loss on sale of land (IHTA 1984 s.191), a deed of variation (IHTA 1984 s.142), a post-grant discovered liability, or an HMRC error — each ground uses different forms and has different evidence requirements; (2) Form IHT35 (Shares): submit this corrective account for share-related relief. You will need a schedule of all qualifying investments sold in the 12-month period, the probate value of each, and the sale proceeds. The form also requires confirmation that all qualifying sales are included (the all-or-nothing portfolio rule); (3) Form IHT38 (Land): for land loss-on-sale relief claims. You will need HMRC's original valuation/agreement, the actual sale price, confirmation of the sale to an unconnected purchaser, and the estate accounts showing which properties have been sold; (4) Cover letter for other corrections: for deed of variation-triggered claims or discovered liabilities, write to HMRC Inheritance Tax (BX9 1HT) with a cover letter explaining the correction, attaching supporting documents (a copy of the deed, evidence of the new liability, etc.); (5) Processing time: HMRC Inheritance Tax typically takes 8–12 weeks to process a correction account. Complex estates may take longer. HMRC is required to pay interest on overpaid IHT repayments from the date the overpayment arose (the interest rate is linked to the Bank of England base rate); (6) Statute of limitations: the general time limit for making a claim for overpaid IHT is 4 years from the end of the tax year in which the payment was made (Taxes Management Act 1970 s.33), but specific IHT provisions set their own limits (shares relief: 5 years 7 months from death; land relief: the election window described above). Always check the relevant provision for the specific ground.