The Daily Telegraph - Saturday - Money
Families facing inheritance tax spared high-interest loans
Families hit by probate delays will be spared from having to take out costly loans to pay inheritance tax bills under changes announced in the Budget.
Inheritance tax bills have to be paid within six months of death or interest will be charged on top.
The Telegraph has reported on how probate system delays have meant families have been unable to access the funds tied up in estates on time.
HM Revenue and Customs charges interest at 2.5 percentage points above the Bank of England base rate, so the charge has soared in recent years to 7.75pc. Serious delays at probate registries have forced families to pay inheritance tax late, racking up thousands of pounds in interest on their tax bills.
However, if there is not enough money in the estate’s liquid assets to pay the bill, some families have been forced to use short-term commercial loans to cover the cost.
This method of borrowing is usually charged at between 0.5pc and 2pc of the amount borrowed per month.
The Telegraph is campaigning for inheritance tax to be abolished.
As part of its tax reforms in the spring Budget the Government has said personal representatives of estates will no longer need to have sought commercial loans to pay inheritance tax before applying to obtain a “grant on credit” from HMRC. A grant on credit is when HMRC allows representatives of a deceased’s estate to postpone payment of all or part of the tax when it is impossible to find the funds needed and can show they have made every practical effort to raise the money.
However, this requirement will no longer include the need to apply to commercial lenders for a bridging loan.
About 0.7pc of all taxpaying estates obtained a grant on credit in 2021- 22, around 200 estates. HMRC estimates that each year about 1,900 out of 400,000 taxpaying estates could seek a grant on credit after the introduction of the measure.
The Treasury estimates that the reductions to probate delays as a result of the change will lead to a £5m annual loss of revenue to the department.
Lucy Cresswell, of JMW Solicitors, said: “The option to have a grant on credit will help those families apply for probate much quicker than waiting to secure an expensive loan and suffer large interest penalties.”
A HMRC spokesman said: “The vast majority of grant on credit applications are processed without delay. This change will ensure those affected can apply for probate sooner and do not accumulate interest on commercial loans.”