House prices in the UK have remained stagnant over the past year, with some areas experiencing even worse conditions. In London, for example, the average price dropped by 3.7 per cent according to data from the Land Registry.

For executors dealing with inheritance tax (IHT) returns, this poses a challenge. When filling out an IHT return, it is required to record the value of the deceased’s assets on the day of their death. However, valuations can change significantly within the six-month timeframe in which IHT is typically due.

To address this issue, executors are entitled to a tax refund if the value of an investment has decreased by the time of sale. This relief applies to property assets as well as other investments like shares. It’s important to note that HMRC does not automatically provide a refund if the property has decreased in value; executors must proactively apply for it themselves.

To claim relief for a loss, executors must complete an IHT38 claim form for property, which can be found on the gov.uk website. Recent data from NFU Mutual, obtained through an HMRC freedom of information request, shows that the number of successful property reclaims for IHT doubled in the 2025-26 tax year.

Sean McCann, a chartered financial planner at NFU Mutual, attributes this increase to falling property prices in London and the south-east, as well as initial property overvaluations and property deterioration between the date of death and sale.

Claiming relief can result in significant savings, as illustrated by NFU Mutual analysis. For example, if a property valued at £1 million at the time of death ultimately sells for £900,000 due to falling prices, the executor can reclaim the difference in IHT paid. This equates to a £40,000 refund.

Similar relief is available for shares that decrease in value, with executors being able to apply for this using an IHT35 form on the gov.uk website. It’s important to include all qualifying investments on this form, even if some shares have increased in value during the period. McCann suggests that in cases where some shares have increased in value, it may be more beneficial for executors to pass those shares directly to beneficiaries rather than sell them, maximizing the tax relief benefit.

Overall, executors should be aware of the potential for tax refunds due to falling property prices and utilize the available forms and resources to navigate these changes effectively.