22 August 2023

Paying Inheritance Tax Bills: The Cure and the Cause?

Sometimes it’s possible that the cure for something is also the cause. And when it comes to Inheritance Tax bills this is often the truth.

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Sometimes it’s possible that the cure for something is also the cause. And when it comes to Inheritance Tax bills this is often the truth. The estate assets are such that an Inheritance Tax (IHT) liability has arisen, i.e the ‘cause’… and the ‘cure’? The estate assets.

In times gone by, the personal representatives of a deceased person’s estate would find themselves in an insoluble position. As the financial institutions, who would be invariably holding the estate assets/money, would not release any money until the personal representatives produced a Grant of Representation (this is an umbrella term for either a Grant of Probate, i.e put simply, if there were a valid will, or a Grant of Letters of Administration, if there were no valid will).

However, a Grant would only be issued once the IHT had been paid. It was an undesirable position to be in, so, unless the personal representatives could fund the IHT themselves (and let’s not forget first and foremost the IHT liability of an estate is that of the personal representatives) they would have to look into the possibility of procuring a personal representatives’ loan, and typically the interest rate would not be commercially favourable.

Nowadays, the situation has – overall – resolved itself. Financial institutions will generally release funds, prior to the Grant being produced, if it is for the payment of IHT. Indeed, there is now a direct payment scheme, in which the banks can pay the IHT directly to HMRC’s account.

In the case of property

So, all sorted then? Well not quite. What if the IHT liability that has arisen is on account of property in the estate (i.e ‘realty’ as opposed to liquid monies, known as ‘personalty’). With the estate assets being made up of mainly or wholly ‘bricks and mortar’ what then is the personal representative to do?

The Revenue do offer an instalment option. They allow you to divide the IHT due against the realty into 10 instalments, payable yearly. For the Grant to issue, they will accept 1/10th of the IHT. Indeed the instalment option is afforded for an ensuing 10 year period, commencing from six months from the end of the calendar month in which the death occurs. In reality, the personal representatives will pay the 1/10th  and then sell the realty, once the Grant issues, and pay the remaining 9/10ths. Interest does however, of course, accrue on the unpaid IHT.

There may also be the situation though, where all the estate assets are realty, meaning the personal representatives cannot even settle with HMRC the 1/10th, to enable probate to issue. In these circumstances the Revenue has been known to allow the personal representatives to apply to them to issue the Grant ‘on credit’, i.e the estate is impecunious -has no access to monies – so the Revenue may issue the Grant on the understanding that the moment the realty sells, the full IHT liability is paid.

As a belt and braces approach, HMRC can accept an undertaking from the personal representatives’ chosen conveyancing lawyer handling the sale -to pay HMRC direct out of the net proceeds on completion of the said sale.

A solicitor’s undertaking is a very serious promise so would only be given if the personal representatives first, in writing, irrevocably authorise the lawyer to give it.

This is, therefore, something to consider as part of the estate planning process.

Help with Inheritance Tax bills

It can be tricky navigating what is expected of personal representatives when it comes to Inheritance Tax - and even more so if a large part of the estate is tied up in property. It’s always best to work with a legal expert to ensure you’re staying on the right side of the law.

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