Do you have to pay inheritance tax before probate?

What is Inheritance Tax?

Inheritance tax is a government tax on the value of someone’s estate after they have died.

It’s a tax of up to 40% on anything above your threshold. That threshold can vary depending on a number of factors, such as the gifts the deceased made in the last seven years, whether they had relatives and/or a spouse or civil partner at their time of death, and how they’ve left their estate to their beneficiaries in their will.

Because of the ‘nil rate band,’ if the estate’s value falls below £325,000 (2024), and no gifts outside of the exemptions were made in the last seven years, or if everything above that threshold is left to a spouse, civil partner, charity or amateur sports club, you won’t have to pay inheritance tax.

There are cases where this threshold can increase, such as if the deceased’s home is left to their children (including adopted, step or foster) or grandchildren. In this case, the threshold could rise to £500,000. If the deceased was predeceased by a spouse or civil partner, their nil rate bands may also be available to transfer, potentially taking the total tax-free estate up to £1 million.

Understanding Probate

Before we go any further, let’s clarify what probate is. In short, obtaining the grant of probate means getting the legal authority to deal with the property, money, and possessions of the deceased after they’ve passed.

As an executor, you must apply for probate before you can sell any properties or assets, or make payments to beneficiaries.

This can be done through a solicitor, an accountant licenced to undertake probate work, or you can fill out the probate forms yourself on the government’s website.

Related reading: Can an executor pay beneficiaries before probate is granted?

How long does the grant of probate process take?

The process of obtaining a grant of probate can take some time.

As of the first quarter of 2023, the average waiting time for both paper and digital applications was 10.8 weeks​. However, this period can vary depending on a variety of factors such as the complexity of the estate, the completeness of the documentation provided, and the overall workload of the probate registry at the time.

It’s possible for some complex estates to take between 6-12 months.

Read more on gov.uk: https://www.gov.uk/inheritance-tax

Inheritance Tax and Probate: The Catch-22 Situation

Here’s the rub: you cannot apply for probate until you have paid the inheritance tax.

Yet, in many instances, you may need to sell property to get the money, to pay the tax, which requires probate.

You’re caught in a bit of a Catch-22 situation.

To make matters worse, HMRC only allows six months from the date of death for this payment to be made without charging the estate interest.

If you can’t pay the tax within six months, you’ll face interest charges and late payment penalties.

Paying Inheritance Tax Before Selling the Estate

So, how can you pay the inheritance tax before selling the estate?

There are a few options available to you:

Accessing the deceased’s funds

Under some circumstances, you might be able to access the deceased’s assets, such as their bank accounts, given you have permission to access the bank account and have the death certificate.

You can then pay the inheritance tax bill using money kept in bank accounts or building societies. Banks or building societies can often pay the inheritance tax directly from the deceased’s account, even if this has been frozen, under the Direct Payment Scheme.

Paying in instalments

There’s an option to pay the tax in instalments for assets which cannot easily be converted into cash, such as land, business interests, and certain holdings or shares.

The bill is divided by 10 and you can pay the instalments annually over ten years. HMRC will charge interest on the unpaid balance, but hopefully, the property would be sold prior to a second instalment falling due. Once the asset has been sold, the tax must be paid in full.

Executor’s Loan

Executors are not liable to pay inheritance tax from their own assets (although they can do if they wish and then claim the funds back from the estate once probate has been granted).

If the other options aren’t suitable, an executor’s loan might be your best option.

Executor loans or Probate loans are available from some banks and specialist lenders. This loan is essentially a short term loan that allows you to pay the inheritance tax bill and obtain the grant of probate.