Grants on credit: finding the money to pay Inheritance Tax
The law requires Personal Representatives (PRs) to pay some or all of the tax due on the deceased’s estate before Probate is granted (IHTM05121). The PRs need a grant of representation to get access to most of the assets in the deceased’s estate and this can make it difficult to raise the money needed to pay the tax. There may be a number of ways in which PRs can get funding from within the estate.
The PRs may be able to use some of the deceased’s assets to pay the tax and interest due in the following ways:
- Under the Direct Payment Scheme (DPS) participating banks and building societies will release funds from the deceased’s account direct to HMRC (IHTM30184).
- Banks that do not participate in the DPS may have their own procedures for releasing money directly to HMRC. The PRs should contact the bank to find out whether they will do this and what their requirements are.
- National Savings Investments (NSIs) or British Government stock can be used (IHTM30183).
- Cash funds held within a share or investment portfolio can sometimes be released. The PRs should contact the stockbroker or fund manager to find out what their requirements are to do this. Some providers of insurance and investment bonds are prepared to release funds direct to HMRC. The PRs should contact the company to find out whether they will do this and what their requirements are.
Where funds cannot be released from the estate the PRs are expected to raise funds through short term loans using their own assets or those of the estate as security. Some lenders may offer PRs probate loans - in effect these are short term unsecured bridging loans. As well as charging interest the lenders may also charge an arrangement fee. These loans will usually be for a short period as they can be repaid after the grant has been taken out and the assets in the estate realised.
PRs are personally liable (IHTM30033) for the IHT due on the deceased’s estate and we expect them to consider all sources of funding, including their own assets.
If the PR or a beneficiary held a joint account with the deceased money can be used from the joint account to fund the IHT payment.
If someone pays IHT due on the deceased’s estate from their own or a joint bank account they held with the deceased, they are entitled to claim the money back from the estate, or from those responsible for paying the IHT.
Even where we allow a grant on credit the PRs are still expected to raise and pay as much of the tax due as they can before the grant.