Q. How do I pay the inheritance tax due before I have access to funds?

probate solicitor hertfordshire bedfordshire buckinghamshireIt’s that Catch 22 feeling… you’re awaiting the issue of the Grant of Probate which will let you get on with all the things you need to do to administer the estate, but you get a notification from HMRC that you need to pay the inheritance tax before it can be issued. So you contact the bank, and understandably, they won’t let you take out the money until they have the Grant of Probate giving you the authority to do so.

What’s an executor to do? Fortunately there are options… some of them may not be that attractive, but hopefully you will find something that works for your particular situation.

  • If you absolutely can’t access the funds in the bank, or there isn’t enough ‘cash’ (liquid assets) as the money is tied up in investments or property, executors have the option to pay the tax upfront themselves and get a refund from the estate once the assets are available. This is known as Executor Payment.
  • If the assets consist of property (and sometimes shares or business assets), you can elect to Pay by Instalments over a period of up to ten years. The first instalment will be due six months following the month that the testator died and interest is charged on the remaining instalments (and you have to pay it on the first if that payment is late). HMRC will then remind you four weeks before each instalment is due. Although it spreads the cost, it does increase the overall amount paid and gives you, as executor, more hassle as you have to administer payments. If the property or other asset is sold, the full amount becomes payable straightaway.
  • If you get really stuck, an Executor’s Loan is available as a short-term solution. However, this can be the most expensive as banks charge standard interest rates and this option is best kept for the worst case scenario.

If you’re reading this list and despairing somewhat, then you will be relieved to hear that there is an easier way!

  • Since April 2003 many people have been able to use the Direct Payment Scheme, which was set up to allow banks and building societies to pay monies directly to HMRC to settle inheritance tax bills, and this is the most commonly used method of payment. To do this, you will need to:
    • Contact the bank/building society in question and check that they participate in the scheme.
    • File form IHT423 with each bank that will be sending money to HMRC
    • At the same time, send form IHT400 to HMRC.

Need help?

Obtaining probate and dealing with inheritance tax can be a complex process, especially when administering large estates. If you would like to take advantage of a free 30 minute consultation we can discuss your needs and devise a plan of action to take things forward. Complex needn’t mean painful! Let’s have a chat.

Sarah Ryan

Q. How do I pay for the funeral before I have access to funds?

This is a common question, so you are not alone in worrying about this. Obviously the banks will not allow access to your relative’s funds until the Grant of Probate has been issued (unless the amount held within the account is under certain limits – in which case they may accept a death certificate and signed indemnity). This can make executors worry about how to pay for the funeral or whether they will have to fund it themselves.

The good news is that, in most estates, this is not the case. When you get the funeral invoice, if you take it down to the bank where the deceased held his money and give it to them, together with an original death certificate, they will either draw a cheque or transfer funds directly to the funeral director. This will also usually be done for any arrangements relating to the wake, although this is at the discretion of individual banks.

A similar procedure can be followed to pay any inheritance tax due. For more information on this, please see my article on paying inheritance tax.

If you are acting as executor and are worried about paying for any liabilities of the estate, please contact me today for a free consultation.