Inheritance Tax (IHT) is a tax charged on the value of a person’s net estate after their death.

It is charged at 40% on assets exceeding available tax reliefs, with a reduced rate of 36% applicable if at least 10% of the estate is left to charity.

Key tax reliefs include:

  • Nil Rate Band
  • Residence Nil Rate Band
  • Spousal Exemption
  • Business Property Relief
  • Agricultural Property Relief

Most estates can claim at least one of these reliefs.

If you’re unsure about which tax reliefs apply to the estate you’re administering, it’s advisable to consult a professional advisor.

Executors are responsible for ensuring the correct tax is paid and for maximising the estate's value, meaning they should avoid overpaying tax.

Failing to claim relief within the designated time frame can make the Executor personally liable.

When Do I Need To Pay Inheritance Tax?

Generally, Inheritance Tax must be settled before the Grant of Probate can be issued.

Although IHT can sometimes be paid in instalments, at least 10% of the total IHT bill must be paid upfront to obtain the Grant.

A common challenge arises when a Grant cannot be issued due to IHT liabilities, but there aren’t sufficient liquid assets in the estate to cover it.

While there may be sellable assets, like property, they typically cannot be sold until the Grant is obtained, leaving Executors in a difficult position.

Executors typically face three options:

  1. Personal Loans: Lending their own funds to the estate to cover the IHT, which may not be feasible for everyone, leaving them out of pocket until reimbursement is possible.
  2. Bridging Loans: Seeking high-interest loans to cover the shortfall until other funds are accessible.
  3. Grant on Credit: Requesting an extension from HMRC to postpone IHT payment in exchange for a binding promise (an Undertaking) to settle the liability promptly once the Grant is issued.

Failure to fulfil this undertaking could lead HMRC to pursue action in civil court.

In addition to IHT, Executors must also consider other expenses, including the Grant of Probate application fee, home insurance premiums, solicitor’s fees, and additional bills.

Paying Inheritance Tax: How Can A Solicitor Help Me?

At Monan Gozzett LLP, our Private Client lawyers specialise in navigating the complexities of probate and tax reliefs.

We offer expert guidance on obtaining a Grant of Probate, ensuring you meet all necessary deadlines while anticipating potential issues.

Our focus is on providing a smooth and efficient process, allowing you to confidently manage your responsibilities.

Contact us today if you would like to learn more about inheritance tax.

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Please note that we are unable to offer free legal advice. Our client services team are here to take your case details and explain any costs involved