Clarification of Inheritance Tax process

yorksquine

Hi
Probably not good having angry face on first post but I am!

My dad died recently. Left unexpected large amount of investments and a property to myself and sister. We have no (real!) objection to paying the tax we owe - HOWEVER...........!

HMRC says we must pay the tax owed before they will issue the probate licence (?) which it appears is the document that releases the money and the ownership of the property to us. It has taken them months to get to this point and now they also say that they charge interest of the tax from 6 months after the death.

Q - how exactly are we supposed to pay this tax without receiving the money/property to do so? We just get by on what we have. Are we just misunderstanding this?

troubleinparadise

Firstly, my condolences for the loss of your father.

I'm afraid this is true - it is a catch 22 situation that executors find themselves in.

It is possible to pay HMRC directly by transfer from savings accounts without needing probate to access the account.

Otherwise it may be necessary to arrange a loan which would be repaid once probate is granted and monies can be accessed, or assets sold.

It is also possible to pay in instalments against the value of a property to be sold, but this incurs interest.

I suggest you do an internet search, or get hold of a book, to explain the processes involved in being an executor and paying inheritance tax.

http://www.hmrc.gov.uk/inheritancetax/paying-iht/

John_Pierpoint

You go and see the nice bank manager and try to borrow it.
The IHT400 forms are like a self assessment income tax form - so once you have got your tax payers reference number, you could pay the money on account to avoid interest charges. I agree getting everything sorted out in 6 months is a bit of a rush, Real estate can pay its IHT over 10 years.but with interest added.

yorksquine

OK - thanks guys. So what I am hearing is that unless executors are already rich in their own right and can start throwing money at HMRC as soon as someone dies, then the likelihood is that costs will mount beyond the initial IHT value because of loans and interest etc. And that is always assuming you will/can get a loan. We could not afford to pay anything back on a loan anyway until the money comes through or the property sold - which could take months.

How come this is OK with everyone?! Surely a more efficient and fair way of doing things is for HMRC to settle things quickly then send the tax bill to be paid within a couple of months say. Why should they get money for dallying around?

So, as a secondary Q - is it then better to have solicitors or accountants as executors who would have the £ to take out loans etc while matters are being sorted?

yorksquine

ps. read IHT website - just didn't believe I had understood it right!

RAS

troubleinparadise wrote: »

It is possible to pay HMRC directly by transfer from savings accounts without needing probate to access the account.

This is what we did; the bank paid the expected IHT directly to the HMRC.

We had to use a solcitor because probate had not been granted but we did this despite not actually having the original will in our possession.

(Our estate was almost all cash but the solicitor's holding the will were barstewards which was the only reason we needed our own solicitors).

yorksquine

What was in savings accounts has already been paid over. There is still as much again to find from property and investments.
Its bad enough losing Dad without wishing he had spent all this on himself or good causes even during his lifetime.
He would be so upset if he knew how much angst this is causing.

nom_de_plume

yorksquine wrote: »

Hi
Probably not good having angry face on first post but I am!

My dad died recently. Left unexpected large amount of investments and a property to myself and sister. We have no (real!) objection to paying the tax we owe - HOWEVER...........!

HMRC says we must pay the tax owed before they will issue the probate licence (?) which it appears is the document that releases the money and the ownership of the property to us. It has taken them months to get to this point and now they also say that they charge interest of the tax from 6 months after the death.

Q - how exactly are we supposed to pay this tax without receiving the money/property to do so? We just get by on what we have. Are we just misunderstanding this?

Hi. Sorry for your loss.

Early this year I was placed in the situation of dealing with probate for my first time and for an estate that had a sizable chunk of IHT to pay. I was lucky in so much as there was sufficient cash savings that were easily transferred across to HMRC to settle the tax bill well within the time limit for avoiding inheritance so I guess I was lucky in that aspect.

If I can pick up on one point which I've highlighted in your post, you state it has taken HMRC months to get to the point which, presumably, is the point of issuing a tax bill. In my experience it was me and not HMRC who controlled the time it took to get to that stage. The tax bill can only be calculated by HMRC when the executor provides them with the numbers needed to calculate it. It took me no longer than 2 months to get 2 properties valued, various shares and bank account worth's plus a smattering of other assets.

Even if everything cannot be valued accurately, good estimates can be submitted and subsequently amended in a later correction account (I'm on my second of these).

Have you spoken with your bank regarding arranging a loan? Also HMRC's probate helpline can be a useful source of information.

EasySolution

There is a special form of Grant of Probate that would allow your Solicitor to complete the process to enable sale of the property-pay the Tax and then pass the proceeds to you as executors.

troubleinparadise

yorksquine wrote: »

OK - thanks guys. So what I am hearing is that unless executors are already rich in their own right and can start throwing money at HMRC as soon as someone dies, then the likelihood is that costs will mount beyond the initial IHT value because of loans and interest etc. And that is always assuming you will/can get a loan. We could not afford to pay anything back on a loan anyway until the money comes through or the property sold - which could take months.

How come this is OK with everyone?! Surely a more efficient and fair way of doing things is for HMRC to settle things quickly then send the tax bill to be paid within a couple of months say. Why should they get money for dallying around?

So, as a secondary Q - is it then better to have solicitors or accountants as executors who would have the £ to take out loans etc while matters are being sorted?

Generally you can get a loan because of the nature of the requirement, and because it is secured - against the asset of the estate proceeds. Thus the lender knows it has first call once probate is granted and estate funds are accessible. You don't make any payments until probate is granted and then you clear the debt in one payment (under the bank system I looked at).

I'm not sure how the estate you are dealing with has been handled. As executor I found the figures and did the IHT 400 tax return myself, so that took as long as it took me; I also then knew how much tax there was to pay. HMRC took a couple of weeks of processing, then I received the demand. What has happened in your case?

As to it being OK with everyone - it came as a shock to me when I realised how the system works, but I also realised that I had no choice. In fact I wished then that I had read up on the duties of an executor in advance when I knew that I was to be one - I naively had no idea of this aspect of the duties!

And yes, using a solicitor to do the return and thus their funding is one way of handling the initial payment, but comes with the downside of their professional fees; but that may suit some people better than making their own arrangements.

Probably more to the point is that lack of tax planning on the part of the deceased ends up with this scenario, plus the duties of being an executor usually turn out to be somewhat more time consuming and at times stressful than one would wish; and I'm sure neither scenario was envisaged when the will was originally written!

yorksquine

Thanks for all the comments and condolences.

One of the Executors was Dads solicitor, the other my sister as I live a long way off. It would seem that the solicitor had made assumptions about the size of the estate and then fell out with the financial advisor who had done far better with investments than assumed! It is the solicitor who has been dealing directly with HMRC and saying that they have been taking a long time over things and that they (solicitors) are not prepared to take out a loan!!

V. stressful for my sister, when on the face of it this was all arranged quite sensibly by my father. It will all end up OK of course, but as 'process' is what I do, this one strikes me as being particularly crass. Sis and I are both very determined that this will not happen for next generation down and will be reading all round the subject immediately our own circumstances are sorted.

Thanks again

J