Does anyone have experience of paying inheritance tax? Is this right?

[BasinHaircut]

My parent are executors of a deceased relative’s will. The estate is not millions but as an unmarried person with a property they are over the IHT threshold, therefore there is IHT to pay.

My mum reckons the solicitor has said that the IHT has to be paid upfront, and is not settled by the solicitor before probate and before anything from the estate is transferred to the beneficiaries. The IHT is in excess of £40k and whilst mum and dad may have this in savings, but not much more, if they settle this bill then if probate then takes an additional year, they will have practically no money until this is resolved.

this doesn’t sound right to be but a quick google suggests it is?

Has anyone been in this situation and what is the alternative to paying the IHT upfront?

I’ve told mum to clarify this with the solicitor but mum and dad are getting quite old themselves and I’m now a bit worried they are not quite as on top of this as they should be. But they are executors, not me and really it’s none of my business!

You (the estate/executors) can get loans for this purpose.

Yes, the IHT due has to be paid before Probate will be granted.

As PP said, there are specialist lenders who can arrange finance, based on the Estate assets.

Thanks, but the lending would be against the estate and the executors don’t have to stump up or guarantee the loan?

that’s the bit that seems off to me, that the executors would be liable for this tax bill and not the estate?

It’s not necessarily the case that the executors are the beneficiaries so that seems mad, and not something I would have considered if I agreed to be an executor of someone’s will, that I’d be liable for the IHT!

Yes, IHT is due before probate is granted. I’m going through this currently with my parents estate. As PP have said, it’s a liability from the estate, not your parents. The cost should either come from the estate, a specialist loan arranged, or you can speak to HMRC and there can be opportunities to pay in instalments, but I think they also charge interest too.

It is an odd thing at if doing it as for the majority of estates the value will be in a property and there might not be cash to pay the tax. It’s probably so HMRC get the tax otherwise if it was due after assets had been sold they’d have to chase / people might not pay.

If your parents are using a probate solicitor they’ll be able to advise, it’s literally their job!

Yes I completely agree with this

Yes IHT has to be paid and signed off by HMRC before probate can be granted. A solicitor working in this area will be able to advise how it can be done but the usual way is a loan secured on the estate's assets.

Some people will cover the possibility via a whole of life insurance policy but that's not cheap and can have IHT issues of its own as regards the premiums.

We paid the IHT from the estate using pretty much everything but the house - bank accounts, shares, Isas and some individual items. This was using a solicitor.
This gives an idea that it can be paid from the estate https://www.gov.uk/paying-inheritance-tax/yearly-instalments

Damn has the edit function gone? Also see here https://www.gov.uk/paying-inheritance-tax/deceaseds-bank-account

Get them to do instalments.
10% first off then pay it off when the house sells.
Specialist loans have higher interest.

They wont pay interest on the 1st instalment as long as it’s paid within 6 months.
https://www.gov.uk/paying-inheritance-tax/yearly-instalments

Do they have cash assets? You can ask the asset holder to pay the IHT direct to HMRC.

I thought banks would release funds from the deceased's estate for IHT? To avoid having to take out a loan?

I am going through this at the moment with my mother's estate. If some of the dead person's assets are in the form of money in bank or building society accounts, national savings or ISAs, you should be able to get the institutions to pay directly to HMRC (the Direct Payments Scheme). You first need to apply to HMRC for an inheritance tax reference number, then download a form to send to the banks, building societies etc.

If the only assets are a house or investments that aren't in the Direct Payments Scheme (shareholdings and so on) then the probate loan option is probably the answer.

@EmmaEmerald not every estate has liquid assets though.

Yes but the poster I quoted said "the usual way" which made me wonder - am I wrong that the bank will release cash from the estate to pay that bill, if cash is available?

Thanks all!

that’s odd then because I believe there should be enough cash in the estate to cover this and so why on earth my parents think they have to use their savings to move things along is beyond me.

I think they may have misunderstood the solicitor as so far on other matters I believe she has been very good

I've had some really good solicitors but mum used one for dad's estate who didn't tell her the most basic things and their bill was huge.

I would suggest your parents ask the banks themselves, I know they shouldn't have to but if it saves taking a loan...

If there is cash in the estate - the bank can pay it directly to HMRC

I’ve literally just done this for my late aunt using a solicitor - form confirming the funds in my aunts Barclays and Nationwide accounts used to pay the full IHT due. Had previously thought we’d have to do instalments or a loan but solicitor was very good

As executors they are responsible for making sure it gets paid.

They are not responsible for paying it personally out of their own assets.

It is owed by the estate. Not by them. If the estate has releasable assets that can be used for this then those can be used to pay the bill. Otherwise the estate (not the executor) gets a loan to cover the expense temporarily until the assets can be sold, then the loan is repaid before any distribution of assets.

If there's £40k from the estate in the bank the executors can ask the bank to release funds direct to hmrc. The bank/building soc will have a form for the executors to complete to do this.
However if there's a house but not enough estate cash in the bank I'm not sure how it's settled with hmrc until the house is sold post probate.

If there are no assets in banks etc and therefore the IHT can only be paid from the money from the sale of the property (which can only happen after probate has been granted - in other words a catch 22 situation) then the executors only need to make a payment of 10% of the IHT that’s due.
The remaining 90% can then be paid off once the property is sold or in annual payments of 10% until the entire amount is paid. Note that the due amount incurs interest.