IHT Payment Advice

CJSA

My mother died three months ago, some four years after my father’s death.
My sister and I are joint executors, and there are multiple beneficiaries including diverse family members and charities.
My mother’s estate is complex, comprising of assets that largely cannot be realised until probate is granted. They comprise:

• A run-down house with a large high maintenance garden. The 3 probate valuations indicate the property is worth £150k - £200k, but only to the 'right' buyer given the nature of the garden. Further, boundary complications mean it is unlikely to be of interest to a developer
• Holdings of listed stocks and shares, many of limited value
• NSRI and Life Assurance savings (not in held in Trust)

Our current calculations indicate that the IHT owed will be substantial. The relatively recent death of father whose bequests and a gift from my mother are tax liable means there is little left of the IHT allowance. My mother’s realisable assets (NSRI and savings) will raise less than 35% over the IHT required.
This leaves my sister and I with the requirement to raise £350,000 to make up the deficit in the IHT payment. Both of our houses are substantially mortgaged, and neither of us have the savings to raise that quantity of money. The amount we can raise will put us at risk of being unable to pay for unexpected domestic disasters such as boiler failure.
My mother’s bank, HSBC, has categorically refused to extend a bridging loan despite my mother having been a long term gold account holder and having been given sight of the value of the stocks and shares that can be sold once probate has been granted.
Does anyone have any advice on how we should raise the money required to make up the balance of the IHT payment?

troubleinparadise

Are you sure about your calculations?

£350,000 IHT payment sounds an incredible amount given the value of the house... :eek:

HMRC does have an instalments system if IHT payment is reliant upon the sale of a property or other assets - information on that is within their guides to IHT.

Keep_pedalling

Agree with the above can you give us an estimate of the numbers please?

Also was the bridging loan taken out by your mother?

CJSA

Thank you 'troubleparadise' and 'Keep pedalling',
I hope my figures are wrong, but the estate seems to come out at around £1,100k: crudely, house £200k, shares & investments £790k, other £20k-£35k.
As I understand the system, bequests from my father and a gifts from my mother to various family members all within the last 4 years (and entered on her tax returns) are liable for IHT 'clawback' reducing the IHT allowance to £160k. 40% of the balance (after the reduced IHT allowance) of £940,000 is £376,000 to be paid the the Inland Revenue to enable probate to be released.
Using my mother's cash savings of £25k reduces the remaining IHT tax to £350k - which has to be raised to release the probate to enable us to sell the shares and distribute the estate to the beneficiaries.
We approached HSBC to ask if they would give us a bridging loan so we could pay the tax, gain probate, sell the shares and repay the loan - they said no. Apparently they used to do this but no longer.
As executors we are charged with sorting out the estate and paying the tax but we seem to have to take on the risk of raising a substantial sum of money as individuals, even though we are not the main beneficiaries.
I feel sure others must have faced this rather difficult situation and wondered how they have addressed it - or perhaps we have completely misinterpreted the IHT400 calculation sheet?

wwl

The assets are there so I can't see why you should have to risk loans etc.
Call HMRC and ask them how to deal with the situation - it's in their interest to help you get it sorted sensibly.
This page covers instalments :

You can pay your Inheritance Tax on things that may take time to sell in equal annual instalments over 10 years.

https://www.gov.uk/paying-inheritance-tax/yearly-instalments

In this case it isn't even a matter of "time to sell" as presumably listed shares can be liquidated quickly as soon as you have the grant.

wwl

Appears instalments are only available in certain cases, however see story here : http://www.telegraph.co.uk/finance/personalfinance/tax/11811339/HMRC-demands-inheritance-tax-before-the-funds-are-available-what-can-we-do.html

"We negotiated a special arrangement with HMRC whereby the executors pledged to inform HMRC of any share sale and make the payment of IHT the priority in terms of distributions. On that basis they agreed to allowing a Grant of Probate to be obtained 'on tick', as it were."
But he stressed this kind of one-off arrangement would have to be agreed with the Revenue on a case by case basis.

In your case you could presumably make an agreement to sell as soon as probate is granted.

You should certainly also seek professional advice re the gifts etc to ensure maximum allowance from both estates.

FreeBear

How much of you father's Inheritance Tax allowance have you been able to transfer to your mother's estate ?

As for paying IHT, I'd suggest negotiating with HMRC and seeing if you can reach some agreement as to obtaining grant of probate on credit - See http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm05122.htm

By the sounds of it, you would benefit from consulting a solicitor or financial advisor well versed in high value probate matters - There may be ways you can reduce the tax bill and/or get funds released from the various sources and paid directly to HMRC.

g6jns_2

Go and get paid for professional advice. This sort of scenario is quite common. The shares can be be easily sold as soon as probate is granted and the bridging loan repaid. A good solicitor should easily be able to find a finance source. It will cost the estate but is a quite legitimate expense.

Keep_pedalling

It all sounds a bit messy and with such large sums involved you really should take some professional advice. As has already been stated, you should be able to pay by instalment. I believe the interest charged by HMRC is currently 3% so you should not need to put your selves in hock with a bridging loan, and once the shares have been solved you should be able to off the entire bill.

wwl

Once this is sorted out, if shares are sold within 12 months of death at a lower value than their probate valuation, you can get the probate value reduced :
http://www.ts-p.co.uk/uploaded/publications/information_sheets/Probate/Main_Inheritance_Tax_Time_Limits_in_Probate.pdf

If the estate includes qualifying investments (usually quoted shares or securities) which are sold in the open market within 12 months after the date of death for less than their probate value, the executors (or other
persons liable for the IHT) may substitute the total of the gross selling prices (ignoring any expenses of sale) for the probate value of the investments sold, and have the IHT recalculated accordingly.

troubleinparadise

Gosh, I see your calculations aren't far off the mark!

As suggested above, with an estate this large I would take professional advice - what a pity your parents did not take financial planning advice themselves which might have addressed this in advance.... Ah well, it is easy to be wise after the event, especially as a third party.

Good luck!