Sorting out the financial affairs of a friend or relative after death was difficult before Covid-19, but lockdown has made it more challenging and time-consuming.
Vanina Wittenburg commented on the probate system during the current global pandemic, which can be accessed in the Financial Times here.
Vanina’s full comments are enclosed below:
What relatives and executors can do to avoid delays in obtaining probate and how long they should expect the process to take?
For estates subject to inheritance tax, there are two steps to the probate application process:
- An inheritance tax return has to be submitted to HM Revenue & Customs (‘HMRC’), any inheritance tax must be paid, and a receipt for the tax paid must be issued by HMRC (on form IHT421).
- An application for probate must be submitted to the Probate Service (whether on paper or online), with the Will, any codicils and other original documents being sent in the post. This application will be deemed completed and processed only when the receipt for the tax paid is received by the Probate Service from HMRC.
The Probate Service has been going through a wholesale restructuring in recent months, with a number of local Probate Registries being closed. This restructuring was causing delays to probate applications prior to the pandemic, and added to reduced staffing at both the Probate Service and HMRC because of the lockdown, has meant that currently each step can take at least one or two months, and sometimes significantly longer, depending on the circumstances.
As a consequence of lockdown, moreover, HMRC now sends the receipt for tax paid direct to the Probate Service by email. This can often cause issues as applications can be reallocated between different Probate Registries with little warning, and so the receipt does not always reach its intended destination.
Delays are likely to become worse once the lockdown is lifted, as we know that despite the average numbers of weekly deaths having doubled during the pandemic, the Probate Service has received only half of the applications it would normally have seen during this period. The expectation is that there will be a huge influx of applications later in the year.
My advice in order to avoid delays as far as possible is to regularly call HMRC and the Probate Service to check on progress. A call every two weeks or so is reasonable, bearing in mind that their current timeline for dealing with papers is at least 4 weeks from the date of receipt, so much might not happen before that time has passed. Always take a note of every call, including the date of the call, and what was said, so you can rely on this information later on. Even if you are told that action will be taken, do not assume this will be the case – keep chasing until you have confirmation that matters have been dealt with. Keep details of when any papers were submitted, and when they were received by either HMRC or the Probate Service. If it is proving difficult for the IHT421 to reach its intended destination, you can ask HMRC to email it directly to you, and then email it to the relevant Probate Registry direct.
Are the current delays likely to cause problems with the payment of Inheritance Tax six months after the death? Are more people incurring interest?
The deadline for the payment of any inheritance tax due is six months from the end of the month of death e.g. for the estate of somebody who died in May 2020, the deadline for the payment of tax will be 30th November 2020. After this date, any inheritance tax remaining unpaid (including on any unpaid yearly instalments due on property which has not yet been sold) will begin to incur interest. The current rate of interest (since 7th April 2020) is 2.60% per annum, and interest is charged daily.
The deadline for submission of the inheritance tax return on the other hand is twelve months, from the end of the month of death, and the penalty for late submission is £100.
At the moment, it may be difficult for personal representatives to arrange payment of the inheritance tax before the deadline, or submit the inheritance tax return on time. This is both because many asset-holders are working with a reduced number of staff, and so information may not be forthcoming; and because it can take a long time to arrange for the forms required to ask asset-holders to pay the inheritance tax to be signed in hard copy by all personal representatives (particularly if any live abroad). Thankfully, as part of its responses to the coronavirus pandemic, HMRC has now announced that delays caused by the pandemic constitute a “reasonable excuse” for late payment of inheritance tax, or late submission of the inheritance tax return. In such a case, personal representatives can make a claim with HMRC by explaining how the pandemic has delayed matters, and this should hopefully avoid any interest or penalties being charged.
As for the submission of the return, although HMRC still requires inheritance tax returns to be submitted on paper, these can now be signed electronically with the addition of a statement by the personal representatives, which makes this part of the process at least easier.
Some readers are concerned that valuations that have been submitted are now out of date because shareholdings have fallen in value and they fear the property they have to sell will not attract the price of the valuation.
Where shareholdings are sold at a loss within a year of the date of death, then a claim can be made to HMRC to substitute the lower sale values for the higher probate values. Any inheritance tax paid on the difference can then be reclaimed from HMRC. It is worth noting that such a claim can only be made where there has been an overall loss across all shareholdings sold during the year; and that the claim must be made on the basis of the gross sale values of the shareholdings (sale costs cannot be deducted, as is the case when calculating capital gains tax). If shareholdings are sold at a loss at a later date, then a claim cannot be made – but any losses can be used to offset gains elsewhere in the estate, and there are a number of other possible tax planning opportunities to be considered with beneficiaries.
A similar claim can be made where a property is sold at a loss, although the timeline for this is within four years of death. The same principle applies in relation to using the gross sale value to make the claim.
Is social distancing causing problems or are firms able to use Skype and Zoom during the process?
Hunters has enthusiastically taken up video conferencing with clients, and I have found this has universally worked well. Nonetheless, we still place value in meeting clients in person wherever possible and, particularly when taking instructions for Wills, seeing a client face to face provides additional safeguards, which I think are key. This is because it allows us, as lawyers, to ensure that we are seeing the client alone, that (as far as possible) they have not been subject to undue influence by anyone around them, and that they have the required mental capacity to give instructions – all of which are harder to assess during a video call.
Nonetheless, this has opened the doors for new ways of communicating with our clients, which will be very helpful in years to come, particularly with a younger generation of clients who may be less likely to want to come to our office to discuss matters, when they can do so from home or from their own offices.
Also, can scanned documents be used instead of original ones?
A number of asset-holders I have dealt with in recent weeks have been happy to receive documents by email – but inevitably, these have to be certified by a solicitor (whether on the electronic copy itself, or by email). There is also no way of avoiding having to send original documents to the Probate Service with the probate application.
However, some progress has been made. As well as HMRC allowing inheritance tax returns to be signed electronically, probate applications can be made online or, if they are made on paper, the required forms can again be signed electronically. It remains to be seen whether these measures will stay in place once the pandemic is over, but it would be extremely helpful if so, as it would avoid the delays caused by having to arrange for executors in different locations to sign papers.