Following news of the end of the stamp duty holiday, property prices fell by an average of 3.7% in the UK in July compared to June.

Sean McCann, Chartered Financial Planner at NFU Mutual, says the drop could mean an IHT refund for some families - but they need to apply for it.

Because inheritance tax is based on the value of property at death, if the property is sold by executors within four years of death at a lower value, overpaid IHT can be reclaimed. 

Mr McCann warned, however, that the tax rebate is not automatic and has to be pro-actively reclaimed. 

A Freedom of Information request submitted by financial advisers at NFU Mutual shows 3,630 families reclaimed inheritance tax in this way in 2020/21, but a slump in property prices could lead to more. 

Mr McCann said: “With house prices starting to dip, it’s important families are aware of this ability to reclaim inheritance tax that could save them thousands of pounds. 

“Inheritance Tax is assessed on the value of a person’s estate on the date of death and the tax must normally be paid within six months. But if property is sold within four years of death for a lower price, the overpaid inheritance tax can be reclaimed. 

“The number of these reclaims dipped last year due to the buoyant housing market, but are likely to increase if house prices continue to fall.  

“With inheritance tax allowances frozen for the next five years, more and more families are being caught in the net. It’s important to take advice to ensure your family doesn’t pay more tax than they need to.” 

The FOI request showed that the number of families reclaiming inheritance tax due to falling property prices was down 26% in 2020/21 compared to the year before as a heated property market pushed house prices higher. 

Families can also reclaim overpaid inheritance tax on the value of qualifying shares and investments sold by the executors at a lower value in the 12 months after death. 

A Freedom of Information request revealed the number of people reclaiming inheritance tax on loss of shares increased last tax year to 2,240.