paying IHT bill if all money tied up in shares and property

bugwoman

My mother died recently, leaving 2 houses and a reasonable sized portfolio of shares but very little cash in the bank (enough for funeral expenses, but little more) The IHT bill is likely to run into several hundreds of thousands, which none of us (her children) as executors and beneficiaries can anywhere near afford to pay either individually or collectively before probate is granted.
It appears there is a bit of a Catch 22 situation in that, although it is the estate not the beneficiaries that is liable for IHT, we may have to take out a terrifyingly enormous loan to pay the bill (probably more than 20 times my pre-tax salary!), as we can't sell the shares or one of the houses (either of which would cover the amount owed) until probate is granted, but probate can't be granted until the tax has been paid.
Does anyone know what can be done in this situation? And what kind of interest rate is likely to be incurred on such a loan? There's also likely to be a big income tax bill for the last tax year when her self assessment form goes in at the end of the month - again there is not enough liquid cash in her bank to cover that, so presumably one of us will have to fork out and claim it from the estate later?

Crabapple

Are the shares in a managed portfolio? There are ways to arrange sales for IHT payment through some investment managers.

If not there are loans purely for these purposes but I have no idea of rates. They are obviously designed for shortish periods.

Income tax for last year won't be due until January but HMRC would have to wait.

Yorkshireman99

bugwoman wrote: »

My mother died recently, leaving 2 houses and a reasonable sized portfolio of shares but very little cash in the bank (enough for funeral expenses, but little more) The IHT bill is likely to run into several hundreds of thousands, which none of us (her children) as executors and beneficiaries can anywhere near afford to pay either individually or collectively before probate is granted.
It appears there is a bit of a Catch 22 situation in that, although it is the estate not the beneficiaries that is liable for IHT, we may have to take out a terrifyingly enormous loan to pay the bill (probably more than 20 times my pre-tax salary!), as we can't sell the shares or one of the houses (either of which would cover the amount owed) until probate is granted, but probate can't be granted until the tax has been paid.
Does anyone know what can be done in this situation? And what kind of interest rate is likely to be incurred on such a loan? There's also likely to be a big income tax bill for the last tax year when her self assessment form goes in at the end of the month - again there is not enough liquid cash in her bank to cover that, so presumably one of us will have to fork out and claim it from the estate later?

This is how it is! You need to talk to her bank. It should be quite straightforward. You are not going to be short once the estate is settled.

bugwoman

Crabapple wrote: »

Are the shares in a managed portfolio? There are ways to arrange sales for IHT payment through some investment managers.

Thanks! The majority of her portfolio is held and managed by a firm of stockbrokers, so we'll have to find out if they can do this, as the amount should be enough to cover the bill as long as further Brexit woes don't send prices crashing!

Crabapple wrote: »

Income tax for last year won't be due until January but HMRC would have to wait.

But wouldn't they charge a penalty plus interest if it's not paid? I think she used to pay more than one installment a year, but would need to check.

Yorkshireman99 wrote: »

This is how it is! You need to talk to her bank. It should be quite straightforward. You are not going to be short once the estate is settled.

Well, no, I realise that we'll be fine once the money is distributed, but it could take a long time to sort out probate, especially if the tax office are being slow or want to question anything, and racking up lots of interest or watching share prices plummeting just seems a bit of a blow on top of the 40% we are handing over to HMRC. We've already had to pay outstanding care costs etc and will incur expenses to maintain the properties until they are sold.
The bank wouldn't necessarily know about her other assets - they have given us a statement of her account and stopped all DDs etc and said they can pay the funeral bill directly to the undertaker or via the solicitor, but there will not be much left after that. I presume we can choose any bank we like if we do have to take out a loan.

Crabapple

Any bank could do a loan but try the stockbrokers first.

There might be interest due on late income tax but you may not have an option there.

If the shares did tank and were sold Within a year of the death you can reclaim IHT paid on the difference. You could also keep them and divide up between beneficiaries.

Yorkshireman99

bugwoman wrote: »

Thanks! The majority of her portfolio is held and managed by a firm of stockbrokers, so we'll have to find out if they can do this, as the amount should be enough to cover the bill as long as further Brexit woes don't send prices crashing!



But wouldn't they charge a penalty plus interest if it's not paid? I think she used to pay more than one installment a year, but would need to check.



Well, no, I realise that we'll be fine once the money is distributed, but it could take a long time to sort out probate, especially if the tax office are being slow or want to question anything, and racking up lots of interest or watching share prices plummeting just seems a bit of a blow on top of the 40% we are handing over to HMRC. We've already had to pay outstanding care costs etc and will incur expenses to maintain the properties until they are sold.
The bank wouldn't necessarily know about her other assets - they have given us a statement of her account and stopped all DDs etc and said they can pay the funeral bill directly to the undertaker or via the solicitor, but there will not be much left after that. I presume we can choose any bank we like if we do have to take out a loan.

I think you should get some paid for professional advice as it is a quite common situation. The sooner you get on with it the less the costs will be. You need to get the properties professionally valued by a RICS qualified s surveyor and the stockbroker needs to provide a valuation of the shares. There is no need to pay any bills until probate and certainly not out of the executors pockets. Maybe you also need help with the probate application in view of the amount of money involved. A good accountant may well cost less than their fees.

bugwoman

Yorkshireman99 wrote: »

I There is no need to pay any bills until probate and certainly not out of the executors pockets.

She had private carers helping her out in the house, who we could hardly leave hanging on for their back pay for months on end while probate dragged on, so we paid them.

The dairy wouldn't close the milk delivery account till it was paid, etc. etc.The house surveyors also claim that they have to be paid within 7 days of doing the valuation - or are they just trying it on and we should tell them all to wait their turn?

Yorkshireman99

bugwoman wrote: »

She had private carers helping her out in the house, who we could hardly leave hanging on for their back pay for months on end while probate dragged on, so we paid them.

The dairy wouldn't close the milk delivery account till it was paid, etc. etc.The house surveyors also claim that they have to be paid within 7 days of doing the valuation - or are they just trying it on and we should tell them all to wait their turn?

Wll you just have to decide what you wish to do. as I said get some paid for professional advice.

G_M

1) banks and brokers often have an arrangement whereby you can instruct them to pay HMRC direct. When completing your Inheritance Tax forms, use IHT 423 "the Direct Payment Scheme"


2) You can pay IHT for some assets in installments. Property is one of these. See pages 55 and following of the Guide to Form IHT400.

You thus declare the value of the property, elect to pay in installments, obtain HMRC approval, obtain Probate, sell property, then pay remainder of tax.

No more Catch 22.

Note: all forms here:

https://www.gov.uk/government/publications/inheritance-tax-inheritance-tax-account-iht400