House sold for less than its probate value?
If the executors sold a property for less than the value used for Inheritance Tax, HMRC may refund some of the tax. It isn't automatic: someone has to claim it.
Why a refund can be due
Inheritance Tax is worked out on what the estate was worth on the date of death, including the property's probate value. If the house later sells for less, the estate has paid tax on value it never received. The law (section 191 of the Inheritance Tax Act 1984) lets the executors replace the probate value with the actual sale price and reclaim the tax on the difference.
Does it apply to you?
The estate may qualify if all of these are true:
- Inheritance Tax was paid on the estate. If no tax was due, there is nothing to refund.
- The property was sold by the executors (or administrators), not by a beneficiary after it was passed to them.
- It was sold within 4 years of the date of death.
- It sold for less than its value for Inheritance Tax.
- The buyer was not a beneficiary or a close connection of the people selling.
How much could the refund be?
Usually the refund is the Inheritance Tax rate (40%) on the difference between the probate value and the sale price. For example, a house valued at £800,000 that sold for £750,000 is £50,000 lower, so the refund could be around £20,000. HMRC can never refund more than the tax actually paid, and other land or buildings the estate sold within 4 years count in the same calculation.
The deadline
The claim must be made within 4 years after the end of the 3-year period that starts on the date of death, so in practice within 7 years of the death.
How to claim
The claim is made on HMRC form IHT38, signed by every executor. You can do it yourself for free, or ask a specialist to prepare and manage it for you.
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Is the refund automatic?
No. HMRC does not refund Inheritance Tax automatically when a property sells for less. The executors must make a claim on form IHT38.
What if the house sold for more than probate value?
Then there is no loss to claim. A gain on one sale within the 4 years also reduces relief on any losses from other sales in the same claim.
Can a beneficiary claim if they sold the house?
Usually not. The relief applies to sales by the people liable for the tax, normally the executors or administrators, not sales made after the property passed to a beneficiary.