Do you have to pay inheritance tax before probate is granted?

08 December 2020

If there's inheritance tax to pay, the court won't issue the grant of probate until it has been paid.

Not all estates will need to pay inheritance tax, depending on how much the person owned and who it's being passed on to. If an estate is liable to pay inheritance tax it will be necessary to pay this to HM Revenue & Customs before probate can be granted.

This is because the court won't issue a Grant of Probate (where there is a valid Will) or grant of letters of administration (where there is no Will) until HM Revenue & Customs confirm the inheritance tax has been paid. This receipt is sent as part of the full inheritance tax return, known as a form IHT421.

With our Probate Complete Service we take full responsibility for getting Grant of Probate and dealing with the Legal, Tax (not VAT), Property and Estate Administration affairs*.

While this might seem like a catch-22 situation, there are options to make payment of inheritance tax more manageable.

Direct payment scheme

Firstly, many banks, building societies and other financial institutions are part of the “direct payment scheme”. This scheme allows money from the bank account of the person who died to be paid directly to HM Revenue & Customs before probate has been granted, as long as the account is in their sole name.

If you want to use this scheme, contact the banks to find out what information and paperwork they need from you, so you can get this arranged. This will help to avoid any delay in paying the inheritance tax, which is important because HM Revenue & Customs start to charge interest on inheritance tax at the end of the sixth month after the death.

You will have to fill in a form IHT423 for each bank that will be making payment and then send this to the banks at the same time as you send the full tax return (known as form IHT400) to HM Revenue & Customs.

Pay inheritance tax in instalments

In certain situations, it's possible to pay the inheritance tax in annual instalments, over 10 years. This option is only available for inheritance tax that's being charged on:

  • Land
  • Business interests
  • Certain holdings or shares (generally either company shareholdings that give the owner control of the company, or a large holding of shares in a company that isn't listed on the stock exchange).

If you choose to pay in instalments, interest won't be charged on the first instalment unless you miss the payment deadline. For each later instalment, interest will be charged on the whole unpaid portion of inheritance tax for the year.

If you decide to pay in instalments, you should still pay the outstanding inheritance tax as soon as possible once the asset has been sold.

Apply for an executor’s loan

As an executor, you don't need to pay inheritance tax from your own money. If the two options above don't work for you, you can apply for an executor’s loan. Generally banks offer these loans at their standard loan rates.

If you need an executor’s loan, speak to the bank as soon as possible. You will need to be able to provide them with details of the assets and liabilities (debts) of the estate. You will also need to repay the loan as soon as possible once you have access to the estate funds, so that the estate doesn't continue to be charged interest on the loan.

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