What happens if you can’t afford Inheritance Tax?
You will be happy to know that if you can’t afford to pay Inheritance Tax (IHT) in full, there are some options available for you. Firstly, you need to make sure that the deceased person's estate is subject to Inheritance Tax (IHT). If so, it’s the Personal Representatives' (the Executors' or Administrators') responsibility to pay the IHT due within six months of the person's death. However, too often we see situations where the estate is cash poor but asset-rich, and paying for IHT can be a struggle for bereaved families. So, what happens if you can’t afford IHT?
Options if you can’t afford the Inheritance Tax
Pay from your bank account
This may include your own money or proceeds from selling shares or investment dividends. If you use your money, this can be treated as a loan by you, to be repaid by the assets in the estate when they are received. We would recommend being careful when doing this, especially if you are not entitled to an inheritance. Also, beware that it may take a long time to recover your money.
Pay from accounts owned by the deceased
Most often, IHT is paid using the Direct Payment Scheme (DPS). This means money is being paid directly from the deceased’s bank account to HMRC.
Pay with British Government stocks
Contact Computershare Investor Services, which runs the British government stock scheme, advising them that you want to pay IHT on your stock. You’ll need to send a letter, IHT400, and probate summary IHT421 to HMRC. HMRC will then contact Computershare to transfer the money. This process is not quick and can take up to four weeks, so this should be avoided if you need probate quickly.
Apply for a Grant on credit
Personal Representatives (PRs) are personally liable for the IHT due on the deceased’s estate, and HMRC expects them to consider all financial sources, including their assets, to settle any IHT due. However, from 1 April 2024, PRs are not expected to seek commercial loans to pay the IHT before applying to obtain a Grant on Credit from HMRC, but they need to ensure they have exhausted all other avenues for the Grant to be issued.
HMRC has also confirmed that in estates where PRs or beneficiaries are living in the estate property, they do not want to cause hardship by forcing the PRs to sell the property to discharge the IHT liability. Therefore, this situation will be reviewed on an individual basis, and the estate will be monitored for payment.
Transfer national heritage property to the Crown
In rare cases, paying IHT on national heritage properties may be an option. This includes buildings, land, artwork, books, or scientific collections of historic, architectural, scenic, or scientific interest; however, these will be handled on an individual basis.
Please be aware that any payment made after six months from the date of death will be subject to the recently introduced 8.5% interest rate.
