Chancellor eases the process to apply for a grant on credit
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Executors are required to pay all or part of the Inheritance Tax (IHT) due on a deceased’s estate before they can obtain a Grant of Probate.
However, as executors require a grant to access most of the deceased’s assets this can make it difficult to raise the funds required to settle the IHT. A ‘chicken and egg’ situation can therefore arise.
Where estate funds to settle the IHT cannot be released before the grant, executors may need to take out a short-term commercial loan. They can repay this loan after the grant has been obtained when they have legal authority to deal with the estate assets. Such bridging loans can be expensive due to interest and possible arrangement fees.
It is only in the most exceptional circumstances that HM Revenue & Customs (HMRC) will allow executors to postpone payment of all or part of the IHT due on the application of the grant.
HMRC will only permit executors to apply for a grant ‘on credit’ where:
- It is impossible to raise all the funds needed to pay the IHT; and
- It can be shown that they have made every practical effort to raise the funds. This would include demonstrating that they have tried to get a commercial loan.
The Spring Budget has eased the process to apply for a grant on credit.
The welcome announcement means that from 1 April 2024, executors will no longer need to go to the length of proving to HMRC that they have sought a commercial loan before applying.
Estates can therefore be relieved from the interest and fees which can arise from a commercial loan when they already face HMRC’s own IHT interest charges, currently at the rate of 7.75%.
This news comes at a time of publicity surrounding delays at the Probate Registry.
