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Probate and the Budget - a nugget of hope?

Yesterday's Budget had some ‘headline grabbers’ around tax cuts - given the cost of living crisis, whether those cuts make a discernible difference remains to be seen.

One nugget of hope which was announced, and which may make a difference, relates to probate and the payment of Inheritance Tax (IHT).

To be able to apply for a Grant of Probate, all the IHT apportionable on the ‘cash’ assets of an estate needs to be paid and 1/10th of the inheritance tax due on ‘property’ assets has to be paid. However, if an estate is property-rich, but cash-poor, personal representatives are in difficulty as they need the grant of probate to be able to sell the property… but can't get a Grant of Probate until they have paid the necessary IHT. 

This leads to personal representatives needing to scrape together funds - potentially looking to commercial loans to meet the IHT payment. With interest rates at a high level and delays with probate being issued, loans are costly - if one can be secured at all.

The Budget confirmed that, from 1 April 2024, personal representatives of estates will no longer need to seek commercial loans to pay IHT before applying to obtain a ‘grant on credit’ from HMRC. This means that if clear evidence can be shown that an estate does not have the cash to pay all of the necessary IHT normally required to obtain a grant of probate, an application can be made to HMRC for permission for a grant on credit, without needing to demonstrate that the commercial inheritance tax loan market has been explored and is not feasible. 

This should both speed up getting to the probate application being able to be submitted and also avoid some estates bearing commercial interest on loans which given delays in probate being granted and issued, is welcome.

However, HMRC charges interest on outstanding IHT payments due from six months after the date of death, and this will also apply to the amount of tax HMRC permits ‘on credit’ until assets can be realised when the grant of probate is available. 

With HMRC's rate of interest on unpaid inheritance tax running at 7.75%, don't be fooled that HMRC is offering a ‘freebie’ with this announcement!

Tags

probate, tax and estate planning, wills, private legal services