Inheritance tax may be due depending on the value of the Estate, who the assets are passing to, and the type of assets held. You may possibly be thinking; “how can I pay inheritance tax when I haven’t obtained control of the estate assets with probate?” Whilst this does pose concern, there are several options available to you:
1) Direct payment scheme
Many financial organisations are part of the direct payment scheme which allows Estate monies held in the deceased sole name to be paid directly to HMRC; who the inheritance tax money is due to. It’s prudent to get in touch with the relevant organisations early to ensure prompt payment of the inheritance tax as HMRC may charge interest on the outstanding tax liability after 6 months from death. Form IHT 423 will need to be completed for each financial organisation that will be making payment. This must be submitted to the banks at the same time as you send the full tax return form IHT400 to HMRC.
2) Pay in instalments
You may be able to pay in instalments over 10 years under the following circumstances:
HMRC will start charging interest on each instalment due from the second instalment (year 2) onwards. HMRC don’t charge any interest on the first instalment unless you pay late. However, once the asset is sold the inheritance tax relates to, the full inheritance tax liability should be paid as soon as practically possible.
3) Apply for an executor’s loan
Executor’s loans are widely accepted at standard loan rates by financial organisations saving you having to pay inheritance tax with your own money. Lending organisations will naturally want details of the Estate such as the Estate assets and liabilities. The interest charges on the loan are deductible from the Estate, so it’s imperative to pay off the loan once Estate funds are accessible to avoid unnecessary interest charges.