Grant on credit for Estate Administration

After someone dies, Inheritance Tax (IHT) is payable on certain assets within six months after the end of the month of death. Certain assets such as property can be paid in instalments over 10 years but interest will accrue (currently at 7.75%) on all unpaid tax.  HMRC requests that all the  IHT due within six months has been paid before they issue confirmation to the PRs that they are happy for the Grant of Representation (the Grant) to be applied for. 

How to pay the Inheritance Tax due?

The PRs may be able to use some of the deceased’s assets to pay the tax and interest in the following ways:

• Banks and Building Societies – Under the Direct Payment Scheme (DPS) participating banks and building societies will release funds from the deceased’s account directly to HMRC
• National Savings Investments (NSIs) or British Government stock can be used
• Cash funds held within a share or investment portfolio can sometimes be released

PRs are personally liable for the Inheritance Tax (IHT) due on the deceased’s estate, and HMRC expects them to consider all financial sources, including their own 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.

The proposed Grant on Credit changes have the potential to eliminate the need for high-interest loans in estate administration, but concerns arise regarding the burden of proving why a ‘Grant on credit’ is appropriate and the timescales for HMRC’s decision. In some estates (where a property sale is imminent) it may be quicker to obtain a loan for IHT and then repay the loan as soon as the property has sold.

HMRC has also confirmed 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.

What do we think about Grant on Credit changes? 

Positives

• Another option available for PRs when looking at how they are going to raise funds for IHT
• This change could stop the requirement for estates to obtain a loan that may attract a higher rate of interest

Points of concerns

• Where HMRC allows a Grant on credit, the PRs will need to give a written undertaking to take the necessary steps to make prompt payment of the outstanding tax and interest. This undertaking needs to be provided by the PRs and without it, HMRC will not agree to the Grant on credit. 
• If the only asset in the estate is a property, and it needs to be sold to settle the IHT, then HMRC requires the PRs to agree to a specific period within which to sell the property and pay the outstanding tax and interest. This, however, can be extremely hard to predict as a sale of the property can be challenging and nothing is guaranteed until an exchange of contracts, which cannot happen until the PRs have the Grant. Most estates requiring Grant on Credit will be cash-poor, which means this example will be common and could result in PRs selling the property at a lower price. 
• As with any new process, the practicalities of how it will work for the PR’s will only be known once applications for Grants on credit are made. It is likely that the additional administration burden at the start of the estate administration process will put more pressure on the PRs.
• Despite the commitment to make this more simple, concerns around turnaround time whilst a decision is made remain. It already takes 12.8 weeks for ‘non-stopped’ digital applications, and 22.8 weeks for ‘non-stopped’ paper applications and any delay by HMRC before they issue the IHT code could be damaging.