When you are dealing with an estate that will be subject to an inheritance tax liability, then it is very important to ensure you follow the process correctly.
HMRC require inheritance tax to be paid within 6 months of death, or there will be interest and possible penalties due. This means that the executors need to move swiftly to ensure that the tax calculations are carried out and arrangements made for the tax to be paid. HMRC will not allow a grant of probate to be issued without the tax being paid first, and this is where executors can encounter problems. Without a grant of probate they cannot release funds held with financial institutions; without the funds being released first, they cannot pay the tax and therefore cannot get the grant.
Some institutions will release funds directly to HMRC for the purposes of settling inheritance tax before a grant of probate is released, and this is what many executors rely on. However, when you are dealing with an estate where the sole asset is a property, then this can be tricky to navigate. Inheritance tax on properties can be paid over 10 yearly instalments, but HMRC will still require the initial instalment to be paid before they authorise the grant of probate to be released. This then leaves executors in the position of having to arrange a loan to the estate which can be stressful. There are circumstances where HMRC will agree to issue a grant of credit or a deferred payment, but it is very important to put this into place as early as possible to avoid penalties.
We are highly experienced in probate and inheritance tax and we are able to liaise with HMRC on your behalf. Please call us for further advice.