Spring Budget 2024: Easing of rules to pay IHT before obtaining “Grant of Probate”

The general rule for executors is that they must pay any IHT due at the end of the 6th month after the date of the death of the person who is leaving a valuable estate (more than £325,000). If the... Read more

The general rule for executors is that they must pay any IHT due at the end of the 6^th month after the date of the death of the person who is leaving a valuable estate (more than £325,000).

If the estate includes bank accounts with sufficient cash to pay the IHT this is not a problem as the executors can sign a form and HMRC takes the tax directly from the bank, then HMRC issues the Grant. The executors then have power under the Grant to realise the rest of the assets, maybe sell a house or shares and then to pay out the net estate to the beneficiaries under the Will or under the rules of intestacy.

All sounds fine but what if there is a large IHT bill to pay, but no cash in the bank to pay it?

In these situations, the executors would have to borrow the funds to pay the IHT secured on the estate assets. Then when the tax is paid via the loan the Grant is issued and the loan can be repaid from the sale of estate assets. But these loans are very expensive and not easy to come by as the lender requires good security for their loan.

HMRC have announced today that they will no longer insist on the executors obtaining an expensive loan. Instead they can apply for  “Grant on Credit” in these circumstances. Previously a “Grant on Credit” was only available in exceptional circumstances, and where the executors could provide evidence that they have explored all possible avenues, including commercial loans.

With interest rates on such probate loans at more than a normal mortgage rate this news is welcome.

Also, to note if the estate has certain assets which are not readily saleable, such as a house or shares in a small business, then the amount of IHT that relates to these assets can be paid under a ten-year instalment basis. The IHT is paid one tenth each year, but if the asset is sold then the full amount outstanding becomes immediately payable.

Again, this gives a useful delay in the IHT payment but at a cost. HMRC charge interest on the instalments from the normal tax payment date of the end of the 6^th month after the date of death. Currently the official rate for interest on late paid tax is 7.75%

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