Probate and inheritance tax

[Crikeyalmighty]

Quick query - a very elderly and single relative of ours has over 700,000 in assets but none of it is in property ( unusual I know) they’ve never been married so as far as I can work out IHT will be due. However the people likely to inherit don’t have the ready funds to pay IHT without mortgaging their house ( and they are elderly too) and searching online it looks like IHT has to be paid before probate granted. How does anyone get around this? We aren’t the beneficiaries either but a close relative will be and has asked me to look into this

Direct payment scheme allows banks to release monies towards IHT before probate has been granted https://www.gov.uk/government/publications/inheritance-tax-direct-payment-scheme-bank-or-building-society-account-iht423

usually most executors will seek legal help to calculate IHT but is possible to apply yourself also Martin lewis has active forum with lots of help https://forums.moneysavingexpert.com/categories/deaths-funerals-probate

The Executors/Administrators are responsible for paying IHT from the Estate. If the Assets are liquid e.g. cash, then Banks will pay IHT direct to HMRC on production of the correct paperwork.

It is also possible to ask HMRC to defer IHT until the Assets have been liquidated https://www.gov.uk/guidance/applying-for-a-grant-on-credit-for-inheritance-tax#:~:text=BX9%201HT-,If%20we%20agree%20to%20postpone%20the%20tax,Tax%20within%20an%20agreed%20timescale.

Also some investment platforms will allow direct payments of IHT.

And many financial institutions will allow amounts of under £30k to be paid directly to executors themselves before probate, if executors sign liability undertakings. We released money in this way before probate. Useful for other expenses as well as Iht. We had funds released by Atom, NS&I, Aviva and Barclays before probate.

I hope you can find a solution, as many schemes that are supposed to assist don't. Whilst you can defer until assets have been liquidated, you are still expected to make a reasonable payment as well, and not all bank accounts/pensions will release funds without the grant of probate, even if the funds are for the payment of IHT. It is a real head scratcher, and the fact that this coincides with a bereavement does not help. Grief is a lot to deal with, let alone the minefield that is probate and IHT. Also, any delay in the payment will incur interest accruing.

You say very elderly but people do live to 120 even sometimes so could the relative possibly give most of it away now to the heirs and survive 7 years and then have no IHT to pay. I also only have a £325,000 tax free IHT band which is very low (it would be $13m in the USA and zero in China or Sweden_) We are taxed to the hilt in the UK.

When we dealt with this last year, there were I think 8 different financial institutions and every one was happy to pay HMRC under the direct payment scheme. Lots of forms involved (one for each separate account) but we had no issues at all paying the IHT this way.

Thanks for the info ladies. All very helpful

Financial institutions may pay direct to Hmrc. They could also reduce the value of the estate by giving away £3k per year, can also use the allowance from 24/25 if they didn’t anything that year. Each year it is also possible to make multiple gifts of £250 to different people. Additionally they could give away a larger sum now as taper relief starts after three years so if they survive 4 plus years there will be less tax to pay and then tax free after seven. I appreciate that giving away money is not always possible as capital may be needed for income.

120!! How many people do you know who even reach 100!

I don’t think this particular person will be giving away anything - however mental that sounds!’

The Co-op Legal website put together a helpful list of financial institutions and the amount of funds that can be released before probate is granted:

https://www.co-oplegalservices.co.uk/media-centre/articles-may-aug-2018/bank-limits-for-probate/

I can confirm that Santander will release funds to the executors if the total holding with them is less than £50,000. I've recently done this and just needed a death certificate and, as executor, proof of my ID. I also found that going through the bereavement team at financial institutions made things a lot simpler.

I'd recommend putting together a spreadsheet itemising all of the person's holdings, so you can get an idea of how much can be released before probate is granted - with £700k and no residential property, I think you'd be looking at IHT at 40% on £375k, so £150k.

As well as the ways to give money free of IHT mentioned above, regular payments can be made out of income, provided this is affordable in the eyes of the taxman. But anyone planning to do this should get advice.

We have just gone through this with my uncle. We filled in the relevant forms and his bank accounts and Stocks and Shares ISA sent the money requested direct to HMRC.

You have to pay within 6 months of death.
If you over pay they will refund you with 5% interest. If you under pay they will charge 7% interest. Worth overpaying a bit.
Funeral costs can also be paid out of bank accounts. The funeral directors and wake venue sent their bills directly to the bank. Those costs come out of the estate value for IHT.