There may be occasions when an estate is ‘money poor, asset rich’ and there is inheritance tax (IHT) to settle with HMRC but insufficient funds readily available. This creates a problem in that a Grant of Probate will usually only be issued when the IHT is paid but if the estate has its funds tied up in property, a property cannot be sold until there is the authority of the Grant, therefore creating a ‘catch 22’ scenario. What options could be considered to address this issue?
In the first instance, beneficiaries could potentially agree to loan money to the estate to cover the IHT due, which can then be repaid to the beneficiaries once the executors have collected the assets into the estate.
Historically, some banks offered loans designed specifically to pay inheritance tax. However, the availability of these products has dwindled over the years but stepping into that gap are a few loan companies specialising in lending to executors to cover an IHT liability which is then repaid from the estate once probate is granted, and assets are liquidated. As with any loan, this will incur interest on the borrowing and potentially other fees to arrange.
If there are liquid assets in the estate, these can be sold to cover the IHT or a direct payment from these holdings can be requested to enable financial institutions to settle any IHT due directly with HMRC.
Comparable to the above beneficiary suggestion, an executor may have their own available funds to pay the IHT and then reimburse themselves from the estate once funds become available.
At request within the account submitted to HMRC, it may be possible to pay inheritance tax in instalments. This will allow the estate to pay what it can afford for now with the remaining balance to be paid annually over 10 years, you will usually have to pay interest on the instalments paid.
What if all the above suggestions have been considered but does not address your circumstances? Well, HMRC in certain situations can also consider offering a ‘Grant on Credit’. This involves the executor obtaining a Grant of Probate without paying the full amount of IHT upfront, with the tax being paid once the estate has the necessary funds. This is often useful when cash is tied up in property as the ‘Grant on Credit’ allows for the sale of the property to liquidate finances to then settle the IHT liability.
It would be wise to request a grant on credit early on in the probate process and once the estate values have been valued, as HMRC will need to consider whether the estate has significant assets but lacks liquidity, if there is an urgent need to obtain probate to administer the estate, such as settling IHT and debts but there are insufficient funds available to pay the IHT within the 6 month period. When other avenues for securing funds (like loans or advances from beneficiaries) are not viable options and to satisfy themselves that the IHT will be paid once the estate is liquidated.
Given the complexity of IHT issues, it is advisable to seek professional legal advice when dealing with insufficient funds to pay inheritance tax and whether a ‘Grant on Credit’ would potentially be required.
The legal professionals at Waldrons Solicitors can meet with you to review the specific circumstances of the estate, advise on the most appropriate and feasible options available to you and provide legal guidance on the requirements and procedures involved in dealing with HMRC, applying for a Grant of Probate and the administration of the estate. Written by Cheryl Styles, Legal Executive.
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