Paying Inheritance Tax

batchoy

My co-executor and I are currently pulling together the information to complete the IHT forms for our mother's estate, and several questions have arisen with regard to paying the IHT. The IHT and Probate websites are inconsistent and woolly on how much of the IHT bill has to be settled before applying for probate. So as a result I phoned the Probate and Inheritance Tax help line but wasn't exactly filled with confidence due to all the umms and errs in the answer given.

The estate is made up of a property and a large number of relatively small investments spread between a number of banks and investment firms. The upshot is that the IHT owing is a six figure sum but no one account contains that amount and the sum of all the bank accounts which could be used for direct payments doesn't make the IHT sum either.

The response from the Probate & IHT help line was that we have to settle whole IHT bill prior to applying for probate with the exception of that arising from the property which could possibly be paid on instalments. We then have four options

1. pay the whole bill from the estate using the direct payment system - not possible as there are insufficient funds in the accounts that can be used for direct payments.
2. pay the bill from our own estates - we don't have level of funds required.
3. raise a loan to pay the bill - I resent paying extortionate interest rate to the banks for an indeterminate period to pay a bill that could be paid very quickly once we had probate.
4. a combination of 123

Was the this advice correct or is there a way of paying what we can before applying for probate and settling the remainder once probate has been granted and we have access to the funds.

getmore4less

What proportion of the assets are property.

look at the HMRC manual for guidence on splitting the bill so the property side can be done in instalments or whatever the guidence on IHT400 says..

http://www.hmrc.gov.uk/inheritancetax/paying-iht/yearly-instalments/index.htm


How to pay by instalments
If you want to pay Inheritance Tax in yearly instalments, you must tick the relevant box on form IHT400 - the full Inheritance Tax account - and use the calculation provided to work out the instalment payments. Alternatively, you can ask HM Revenue & Customs to do the calculation for you.

batchoy

The property accounts for <40% of the assets, thus the IHT on the remainder is just under a six figure some. However we still can't pay this from assets until we get probate as the accounts that can be drawn on for direct payment have insufficient funds.

The issue is that the written guidance is unclear some would indicate that you don't have to pay any IHT prior to applying for probate, just submit the forms. Some indicates that you need to have paid some of the IHT (but doesn't elaborate on what proportion) and some, as with the Probate and IHT helpline, all the IHT except the proportion that can be paid on instalments. My question, is which is correct?

dzug1

AAUI (which may be wrong):

You pay as much of the IHT as possible using the direct payments

You defer the rest and pay HMRC interest on it when it's settled. They may well expect instalments in the interim.

Or does that still leave a gap? If so it's 2 or 3 or a combination

troubleinparadise

I agree with you that it isn't immediately clear, but I always found the HMRC helpline very helpful for me.

If you wanted a simple if slightly costly solution then taking out a loan for the period of a couple of months won't actually be extortionate. You say that having received Probate you can then access funds to pay this off quickly. The interest incurred comes out of the estate. I would imagine this cost is a very small proportion of the estate ultimately.

You will still pay interest on the unpaid portion if paying by instalments. How that compares with the interest rate on a loan I don't know.

I took out a loan to cover the amount I couldn't achieve using direct payments from accounts. As it turned out, the interest wasn't that large a sum; I also took the view that it reduced some of the headache in the whole process, which was using a lot of time and quite stressful in itself. Equally I had "saved" the estate a reasonable sum by doing the IHT 400 return task myself rather than using a solicitor.

Sorry, I haven't helped answer your query directly. But I found that sometimes I got so bogged down in trying to do it all myself that I lost sight of some of the simpler solutions that actually didn't cost very much. Paying IHT was an irritation in itself! I wished the money had been blown on having a good time instead of saving for a rainy day and ultimately giving it to the Revenue.....

getmore4less

AIUI you can send in the IHT 400 forms to HMRC and they will tell you how much tax they want paid before they will let the courts process the PA1 and issue the grant.

http://www.hmrc.gov.uk/inheritancetax/iht400-notes.pdf

page 7 & 53 seems pretty clear