This article was originally published in Taxation, on 9 May 2022, and can be found here.
The impact of the pandemic for probates and hope for the future
The pandemic has had a sustained impact on millions of people everywhere. UK government departments were not immune: staff were suddenly forced to work from home as COVID-19 spread throughout the population. For those dealing with the probate process, the ensuing challenges were further compounded by two additional factors: the redeployment of tax experts from the Inheritance Tax (IHT) department at HM Revenue & Customs (HMRC) to Brexit taskforces, and changes to the Probate Service’s operation, which had started to take effect before the pandemic. The combined impact created a perfect storm resulting in huge delays to the administration of deceased estates. The situation has nevertheless improved and will hopefully continue to make the process more straightforward in future.
Steps in the probate process
Probate procedures are long-established. When someone dies with substantial assets (broadly speaking over £325,000, although in reality some larger estates are not subject to this), the personal representatives of the estate must report the value of all the assets to HMRC and then pay IHT, if required, using form IHT400. Once this has been received and processed, HMRC will issue a receipt for the IHT paid which can be used to apply for a grant of representation: a grant of probate if the deceased had a Will, or a grant of letters of administration if they did not. A legal document, the grant of representation permits the estate’s personal representatives to deal with the assets: close bank accounts, sell or transfer properties and investments, and so on.
Notably, when an estate is subject to IHT, any tax due must be paid by the end of the sixth month following the month of death. But on properties and certain investments, IHT can be paid in ten annual instalments, which means that only the first instalment becomes due by the six-month deadline. Any tax that remains unpaid thereafter (including the balance of IHT due on properties where the instalment option has been chosen) accrues interest (3.25% per annum as of 5 April 2022). It is vital that an IHT reference is supplied as the payment reference once it is made. To avoid any payment delays, an online application for an IHT reference should be made as early as possible since it takes at least a week for HMRC to issue one.
For those estates that have to be reported to HMRC, irrespective of whether tax is payable, an IHT account must be submitted by the end of the twelfth month following the month when death occurs. For accounts that are submitted after this deadline, a penalty of £100 may be levied.
The smooth operation of the process naturally requires HMRC and the Probate Service to act in a timely manner. But over the past two years, delays with both agencies have meant that those dealing with deceased estates have routinely had to face delays of several months.
Dealing with HMRC during the pandemic
For logistical reasons, Brexit had a direct impact on the IHT department at HMRC. Many of the tax experts whose role involved dealing with detailed IHT queries – undertaking detailed reviews of complex estates – were transferred from their usual tasks to assist with governmental Brexit planning. The inevitable squeeze that this created was further compounded by the pandemic: all HMRC officers uniformly switched to working from home. The ensuing problems have not yet been fully resolved, not least that HMRC mostly still communicates by post only. As most HMRC case workers worked from home, correspondence went missing or was not sent at all while arrangements to have it printed and posted by their HMRC colleagues in the office consistently failed. In most cases, despite a specific case worker being assigned to each estate, no direct contact details are ever given. Except by post, the only way to contact HMRC is to call the IHT helpline.
In the early part of the pandemic, this routinely resulted in receipts for tax paid not being issued. Fortunately, things have much improved since then: the IHT department is now able to share receipts in electronic form directly with the Probate Service. But some challenges remain. HMRC delays with issuing receipts are still commonplace because case workers do not have access to all the relevant paperwork – either because it has not been sent to them or, more often, because it has not been scanned properly. Despite HMRC having 20 working days to issue the receipt, if it has not been received by the 15th working day it is prudent to call the IHT helpline and ask HMRC to expedite the process. In practical terms, calling the helpline is still the best way to move matters along, and should be done frequently (on a case-by-case basis).
Notwithstanding the recent problems, there have been some notable improvements:
- During the pandemic, HMRC confirmed that the digital signature process now applies
to IHT accounts. It appears that this measure will be kept. Further details are available in the HMRC guide to completing form IHT400:
Regrettably, the IHT account must still be sent to HMRC in hard copy format.
- When one of the IHT department’s tax specialists (usually referred to as ‘the compliance team’) deem an estate to be complex it may now be possible to switch to email communication. This should be requested for each complex estate, subject to approval being given by the personal representatives. Should the case worker agree, this can create huge savings in time.
Teething problems at the new Probate Service
The days of regional Probate Registries will be sadly missed by anyone who has historically dealt with probates. Each Probate Registry used to be manned by a small team of specialists who could be directly contacted by phone. For professionals, in particular, this meant that any queries were dealt with quickly. But cost and efficiency demands have since resulted in the closure of most regional Probate Registries, leading to probate services becoming centralised into the Probate Service. Non-specialists now deal with the majority of probate applications, which can make the process difficult when circumstances are out of the ordinary.
In the vast majority of cases, however, the new centralised system has had time to bed in, meaning that the process has become quite straightforward – although it is still slower than when regional Probate Registries dealt with applications. Almost all applications can be made online while any original documents that are required (e.g. the original Will or any codicils) can be posted to a scanning centre in Harlow. Following the submission of the IHT account to HMRC, a period of 20 days needs to elapse before the probate application can be submitted.
Thereafter, if everything goes smoothly and no documents are lost, the grant can then be issued within one to two weeks of submission. By comparison, this represents a huge improvement on the timeline that applied in the early part of the pandemic, when two to three months was the norm.
Issues do still arise, however, in relation to missing documents, which can happen for a variety of reasons:
- The receipt for tax paid has not been issued by HMRC. Until the applicant is certain that it has, then the probate application should not be submitted. If it has not, then the application could be put in a separate, ‘stopped’ queue at the Probate Service, which will inevitably cause delay. In practice, it could take the Probate Service several weeks to review the matter again once the receipt is sent by HMRC.
- The applicant does not send the original documents to the Probate Service. Once the application has been submitted, the confirmation page on the online system will automatically confirm which original or copy documents need to be sent. There should be no problem, so long as the listed documents are sent.
- Although the Probate Service receives the original documents, they are not scanned on properly. As indicated above, a third-party company in Harlow scans in the originals. But they often overlook the fact that these documents may be double-sided. Sometimes, they do not scan a document at all.
The Probate Service provide updates to the online probate application system whenever any action is taken, so it is helpful to check this every few days to ensure that progress is being made. If no updates appear on the online system, then a call should be placed to the Probate Service. Where an agreement is made on the phone for the Probate Service to do something, then it is a good idea to call back periodically in order to check that whatever was agreed has in fact been done.
The future for probates
As outlined above, dealing with both the IHT department at HMRC and the Probate Service was problematic during the pandemic because of restrictions, which caused inevitable delays to the process. For those who have lost loved ones unexpectedly because of COVID-19, it must have been particularly distressing to have to deal with this – perhaps, for the first time in their lives. It has also been a frustrating time for professionals. But there have, at least, been some improvements: from the online probate application to communication by email with HMRC compliance officers, the probate process is finally taking steps towards becoming increasingly digital.