What are my options if I can’t pay the Inheritance Tax due?

If a deceased persons estate is subject to an Inheritance Tax, it is the Personal Representatives (the executors or administrators) responsibility to pay the Inheritance Tax due.  This is due at the end of the sixth month after the person has died.

In most estates there are available cash assets that can be accessed before the Grant of Probate to pay the Inheritance Tax.  Other estates may rely on life policy proceeds specifically for the purposes of paying the Inheritance tax.

Pay tax by Instalments 

If the estate consists of land and buildings (including the person’s place of residence), the Personal representatives can apply to pay the tax in instalments over a 10-year period, allowing them time to obtain the grant and sell the assets, releasing monies to settle the inheritance tax liability.

There are some occasions, however, where these options are still not suitable or available, and the Personal Representatives will need to look at other options.

An Executors Loan

One way the personal representatives can pay the inheritance tax due is by using short-term loans. They would be required to pay these loans back when the grant of representation has been received and they can access the deceased’s assets. A pitiful to this solution, however, is that these short-term loans can come with arrangement fees and high interest rates.

A ‘Grant on Credit’?

HMRC may allow the personal representatives to postpone the payment of part or all of the inheritance tax due on the application of the Grant of Representation. But this is only permitted in certain circumstances where it is impossible to raise all the money needed to pay the inheritance tax and it can be demonstrated that the personal representatives have made every effort practicable to raise such money. Prior to 1st April this included showing they have attempted to get a short term loan.

What do the personal representatives need to do to apply for a ‘Grant on Credit’?

The personal representatives must send across to HMRC the completed and signed IHT400 (known as the Inheritance Tax Account) along with the supporting pages.

They must also provide a letter confirming they are unable to access the estate assets by using the Inheritance Tax Direct Payment Scheme or British Government Stock, or the deceased’s stocks/investments (by asking the stockbroker to pay directly to HMRC) or any insurance/ investment bonds held by the deceased (again by asking the company to pay directly to HMRC).

Additionally, they must inform HMRC of the maximum amount they can pay towards the inheritance tax due, and what steps will be taken to raise the tax due if they agree to allow a ‘Grant on Credit’. HMRC will also request he personal representatives to sign an undertaking – a promise to pay the tax within a set timescale.

For further advice get in touch with the experts in our offices in Northampton, Kettering, Corby, Higham Ferrers, Wellingborough and Leicester.