How to prepare your estate for the wait: Paying Inheritance Tax before probate

When someone in Marlow or Oxford dies, the personal representatives will usually need to make an application to the Probate Registry.  Probate, as explored in our September article, (How Long Does Probate Take? | The Burnside Partnership), is the legal process of administering a person’s estate after they die.  If they left a Will, the named executor applies to the Probate Registry for a Grant of Probate. If there isn’t a Will, a family member usually applies for Letters of Administration instead.

These documents allow the personal representatives to collect assets, pay outstanding debts and taxes, and distribute the estate to the beneficiaries. 

What are my first steps?

After someone dies, engaging a specialist Private Client Solicitor local to you in Marlow will take the strain at this stressful time, helping to make this process quicker and easier by ensuring that the relevant documents and information are gathered together in advance of the application.

Once the application is made, how long you wait for the Grant of Probate or Letters of Administration depends on the complexity of the estate – it can be a few weeks, or it can take months.  However, the process will take much longer if, for example:

• A Will is missing, or provisions in it are disputed,
• There are assets overseas or which can’t be located,
• The executors named in the Will can’t be found, are dead, or do not want to act, or
• HMRC is investigating the Inheritance Tax position of the estate. 

But when is Inheritance Tax due?

Inheritance Tax (IHT) has to be paid within 6 months of the end of the month in which the person died.  Given the application processing times, this deadline can fall well before Probate is granted.  So, there’s a Catch 22 situation: properties and investments cannot be sold without the Grant of Probate or Letters of Administration, but tax cannot be paid without properties and investments being sold.

How can I make sure there is enough in the pot to avoid paying late and incurring interest and potentially penalties? 

Many banks and building societies are willing to pay estate funds directly to HMRC on account of the IHT due, before Probate is issued.  If the person who has died did not leave a bank balance large enough to pay the bill, some specialist providers will lend funds to pay the IHT bill.

However, personal representatives may not wish to pay interest on a loan, as this amount will reduce the funds available to be ultimately distributed to the beneficiaries.  And, with complex estates, it is impossible to know when Probate will be granted and the estate will have sufficient funds to be able to repay the loan.  Interest charges may mount up, and personal representatives might find it difficult to justify such charges on the basis that there is money within the estate which simply cannot yet be accessed.

How else can I make sure the estate has enough cash to pay the IHT bill?

There are options which can be considered before a person dies, which anticipate this issue, and which will avoid the need for a Grant of Probate or Letters of Administration to free up ready funds.  Whilst allowing the personal representatives to pay IHT on time, they also help beneficiaries to be able to access their entitlements sooner. 

If you would like to discuss how to:

• Navigate the probate process, or
• Plan your assets to ensure your loved ones will be able to pay inheritance tax on time after you die, or
• Structure your assets to minimise your IHT bill.

please contact Bethan Chant at bethan.chant@theburnsidepartnership.com.