How Can Inheritance Tax Be Paid If There Is No Cash Immediately Available In The Estate?
In her latest Timms blog, Wills and Probate Solicitor Charlotte Day discusses “How Can Inheritance Tax Be Paid If There Is No Cash Immediately Available In The Estate?”
What Is Inheritance Tax (IHT)?
Inheritance Tax is a tax payable on death where the deceased’s estate is worth more than the available allowances.
Every individual in the UK has a Nil Rate Band allowance of £325,000.
Where a deceased individual owned a property and left it to lineal descendants the Residence Nil Rate Band Allowance can be claimed up to £175,000 depending on the value of the property.
If you are married or in a Civil Partnership, then your surviving spouse or Civil Partner can claim any unused portion of your Nil Rate Band or Residence Nil Rate Band allowance on their death.
This means that the value of a deceased’s estate up to the allowance available will be charged at 0% to IHT. If the estate is in excess of the allowance available, then there will be tax due on the excess at 40% (unless 10% or more of the estate is left to charity in which case the rate will be 36%).
Gifts made in the deceased’s lifetime can impact the amount of allowance available on death, so this is important to bear in mind.
When Does IHT Need To Be Paid?
IHT must be paid by the end of the sixth month following the date of death of the deceased. If the Executors do not pay by this date, then interest and penalties may be applied.
This doesn’t leave Executors with an awful lot of time to collect in the assets of the estate which means that there are often occasions where IHT needs to be paid but there is no cash available.
The Grant of Probate cannot be issued until the Court is satisfied that the IHT has been paid, and often the Grant of Probate is needed to access the cash.
How Can Inheritance Tax Be Paid When There Is No Cash Available?
Some Executors may be able to pay the IHT from their own resources and then claim it back from the estate when funds are available. Another option may be to consider a short-term loan which can be paid back once the assets in the estate are sold. However, not all Executors will be able to or be comfortable doing this.
Most banks offer a service where they will pay IHT directly (in full or in instalments) to HMRC from the deceased’s bank account, without needing the Grant of Probate.
Finally, the cash could be tied up in a property which cannot be sold until the Grant of Probate is obtained (which will not be possible until the tax is paid). If this is the case, then HMRC can allow Executors to pay the IHT in annual instalments over the course of 10 years. There will be interest charged on these payments that also needs to be paid.
How Can Timms Help?
If you have any questions regarding this inheritance tax or you would like any advice in relation to Will or Probate, please don’t hesitate to contact me on 01283 561 531 or c.day@timms-law.com.
Alternatively, you can visit the Wills and Probate section of our website here.
April 2022