Thousands reclaim overpaid inheritance tax – are you owed a refund?

More than 18,000 claims for overpaid inheritance tax were made over the past three years, according to HMRC figures obtained by insurance provider NFU Mutual. 

The majority, 12,915 claims, were due to property sales, with numbers rising 65% since 2022. A further 5,096 claims followed share sales where values had fallen. 

Here, Which? explains when you could be due a refund, why more estates are being caught by inheritance tax, and how to reduce the bill on your estate.

When can you reclaim overpaid inheritance tax?

Inheritance tax is based on the value of someone’s estate at the time of their death. Because the bill is usually paid within six months, it’s often calculated using estimated values.

If property or investments are sold for less than their original value, it’s possible to reclaim the overpaid tax from HMRC.

You may be eligible for a refund if:

• Property is sold within four years of death, at a price that’s at least 5% or £1,000 lower than its value at death (whichever is lower).
• Shares or qualifying investments are sold within 12 months of death for less than their value at death.
• A property was overvalued on the inheritance tax return or its condition deteriorated before the sale.

Find out more: inheritance tax calculator

How to reclaim inheritance tax 

HMRC won't automatically refund overpaid inheritance tax, so you will need to request this. You must either have paid the bill yourself or be someone responsible for settling it, such as an executor or trustee.

For property-related refunds, you will need to fill out the IHT38 form, and for shares or 'qualifying investments', you will need to fill out the IHT35 form.

You will need to details of the sale and explain why the value was changed. Both forms are available on the GOV.UK website.

Refunds take between three to nine months to process, depending on the complexity of the claim. HMRC also pays interest on overpaid tax at 3.5%, which is calculated from the date of the overpayment to the date the refund is issued.

• Find out more: inheritance tax on property

Why you might get back less than expected 

When you reclaim inheritance tax on shares or investments, the rules mean you must include all qualifying investments sold by the executor within 12 months of death, not just those that have fallen in value. This can reduce the amount of tax you get back if some investments have increased in value.

Sean McCann, chartered financial planner at NFU Mutual, said: 'If some have increased in value, this will reduce the amount of inheritance tax that can be reclaimed.

'In these circumstances, it may be more advantageous for the executors to pass the shares or investments that have increased in value directly to the beneficiaries rather than sell them. This means you make a claim only for those shares that have fallen in value, ensuring you maximise the benefit.'

• Find out more: inheritance tax planning and tax-free gifts

Why more estates now face inheritance tax 

Inheritance tax was designed to apply to the wealthiest estates, but frozen thresholds and rising house prices mean more people are being caught in the net.

HMRC’s inheritance tax receipts have been rising steadily. In May 2025, £701m was collected, taking the total for the year so far to over £1.4bn – a 7% increase compared to the same period last year.

The latest Office for Budget Responsibility forecast estimated that inheritance tax would raise £9.1bn in 2025-26, with this figure rising to more than £14bn by the end of the decade.

Around £2.5bn of this increase is linked to changes announced in last year’s Autumn Budget, mainly the decision to bring pensions into scope from April 2027.

Currently, around 4% of estates pay inheritance tax, but the Institute for Fiscal Studies predicted this could rise to over 7% by 2032-33. That forecast was made before the pensions change, so the number of estates paying inheritance tax is now expected to increase further.

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4 ways to reduce inheritance tax on your estate 

Everyone has a basic allowance of £325,000 that’s free from inheritance tax. This covers the total value of your estate, including property, savings, investments, businesses, vehicles and life insurance payouts.  If your estate is worth less than this, your loved ones won’t pay inheritance tax.

Anything above the £325,000 allowance is taxed at 40%. But there are ways you can reduce how much your family might have to pay:

1. Use the residence nil-rate band

For most people, their home is the most valuable asset. You can pass it on tax-free to a spouse or civil partner. 

You can also increase your tax-free allowance by £175,000 using the residence nil-rate band if you leave your home to direct descendants, such as children, grandchildren, stepchildren and adopted children. This could allow you to pass on up to £500,000 tax-free, or £1m as a couple. 

The residence nil-rate band doesn’t apply if you leave your home to nieces, nephews or other relatives. It also tapers for estates worth more than £2m, reducing by £1 for every £2 over that threshold.

• Find out more: should you be worried about inheritance tax? 

2. Share tax allowances 

If your spouse or civil partner dies without using their full inheritance tax allowance, you can inherit the unused portion. 

By combining allowances, couples can pass on up to £1m tax-free if they leave their home to children or grandchildren. The percentage of unused allowance is what matters, so if your partner only used 50% of their allowance, you can add 50% to your own. 

Allowances can only be transferred once. If you remarry after inheriting a spouse's allowance, it can't be passed on again.

• Find out more: 7 ways to cut your tax bill 

3. Give away money during your lifetime

Passing on money while you’re alive can reduce the value of your estate and help cut your inheritance tax bill.

Everyone has an annual exemption of £3,000. This is the total amount you can give away tax-free each tax year. You can also give:

• £5,000 - to a child getting married or entering a civil partnership
• £2,500 - to a grandchild getting married or entering a civil partnership 
• £1,000 - to anyone else getting married 
• £250 - each year to as many people as you like, as long as they haven't already received your annual exemption 

You can also make regular gifts from surplus income, such as paying into a child’s savings account or covering life insurance premiums for your spouse or partner.

Be aware of the seven-year rule. If you die within seven years of making a gift, it could still count towards your estate. The tax reduces on a sliding scale depending on how long you survive after making the gift:

• Less than three years: 40%
• Three to four years: 32%
• Four to five years: 24%
• Five to six years: 16%
• Six to seven years: 8%
• More than seven years: 0%.

4. Leave money to charity in your will

Money left to UK-registered charities in your will is completely free from inheritance tax, and it can also reduce the rate you pay on the rest of your estate.

If you leave at least 10% of your estate to charity, the inheritance tax rate on the remaining estate falls from 40% to 36%. This can significantly reduce your overall tax bill while supporting causes that are important to you.

• Find out more: how to write a will