How to obtain probate when there is insufficient money to pay IHT

[hiriskpaul]

Not a problem I currently have as the estate I am currently executor for has a spouse exemption, but this situation must arise and could arise in the future for estates for which I am named as executor, so I was wondering how it is handled. I know that it is possible to pay IHT in installments when property is involved, but it does not look as though this is allowed when the assets are in listed securities.

If someone has most of their savings in shares and/or funds/ITs and there is insufficient cash in the estate to pay IHT, how can executors proceed? It does not look as though brokers will let you sell shares without a Grant, which you cannot get before paying IHT!

[Lootman]

If someone has most of their savings in shares and/or funds/ITs and there is insufficient cash in the estate to pay IHT, how can executors proceed? It does not look as though brokers will let you sell shares without a Grant, which you cannot get before paying IHT!

Yeah, you have to remember that probate does not exist to help the deceased, or the family or beneficiaries of the deceased. It is designed purely to protect the creditors of an estate, mostly the taxman of course.

If someone told me that I had 3 months to live then I would transfer all my assets to my loved ones. That would not legally avoid IHT but it would at least avoid probate. And it would then be for the taxman to claim his pound of flesh rather than putting the onus on the grieving relatives.

Old legal saying - possession is nine points of the law, or some such.

[scrumpyjack]

Not a problem I currently have as the estate I am currently executor for has a spouse exemption, but this situation must arise and could arise in the future for estates for which I am named as executor, so I was wondering how it is handled. I know that it is possible to pay IHT in installments when property is involved, but it does not look as though this is allowed when the assets are in listed securities.

If someone has most of their savings in shares and/or funds/ITs and there is insufficient cash in the estate to pay IHT, how can executors proceed? It does not look as though brokers will let you sell shares without a Grant, which you cannot get before paying IHT!

Normally banks will lend the money to pay the IHT. They will need the IHT ref number which you get from HMRC and they will make the payment direct to HMRC under that reference. Obviously there is an interest cost to the estate.

[Laughton]

Hmmm. Thanks for raising the subject hiriskpaul. Not something I'd thought about - but I (we) should.

[hiriskpaul]

Not a problem I currently have as the estate I am currently executor for has a spouse exemption, but this situation must arise and could arise in the future for estates for which I am named as executor, so I was wondering how it is handled. I know that it is possible to pay IHT in installments when property is involved, but it does not look as though this is allowed when the assets are in listed securities.

If someone has most of their savings in shares and/or funds/ITs and there is insufficient cash in the estate to pay IHT, how can executors proceed? It does not look as though brokers will let you sell shares without a Grant, which you cannot get before paying IHT!

Normally banks will lend the money to pay the IHT. They will need the IHT ref number which you get from HMRC and they will make the payment direct to HMRC under that reference. Obviously there is an interest cost to the estate.

Yes, I am sure they will! Any idea what sort of rate they would charge? Or maybe there are specialised lenders for this sort of thing?

For the estate I am administering now, if both had died at the same time there would be about £1.5m in IHT liability, excluding the IHT due on property, but only around £500k in cash, or near cash Index Linked Savings Certificates which I understand can be used to pay IHT. So we would have had to borrow about £1m from somewhere if HMRC really do insist on upfront IHT on the shares portfolio.

It seems totally unfair of HMRC to insist on IHT being paid on assets that cannot be liquidated without probate.

[mc2fool]

Not a problem I currently have as the estate I am currently executor for has a spouse exemption, but this situation must arise and could arise in the future for estates for which I am named as executor, so I was wondering how it is handled. I know that it is possible to pay IHT in installments when property is involved, but it does not look as though this is allowed when the assets are in listed securities.

If someone has most of their savings in shares and/or funds/ITs and there is insufficient cash in the estate to pay IHT, how can executors proceed? It does not look as though brokers will let you sell shares without a Grant, which you cannot get before paying IHT!

So there isn't the same problem with savings in banks & building societies? They don't lock those accounts on being informed of the death and require probate before letting the executor(s) access them?

[hiriskpaul]

Not a problem I currently have as the estate I am currently executor for has a spouse exemption, but this situation must arise and could arise in the future for estates for which I am named as executor, so I was wondering how it is handled. I know that it is possible to pay IHT in installments when property is involved, but it does not look as though this is allowed when the assets are in listed securities.

If someone has most of their savings in shares and/or funds/ITs and there is insufficient cash in the estate to pay IHT, how can executors proceed? It does not look as though brokers will let you sell shares without a Grant, which you cannot get before paying IHT!

So there isn't the same problem with savings in banks & building societies? They don't lock those accounts on being informed of the death and require probate before letting the executor(s) access them?

They do yes, but there is an arrangement, the "Direct Payment Scheme", that banks have with HMRC whereby IHT is paid directly from the bank/BS to HMRC. NS&I participate in this, so Premium Bonds and Savings Certificates can be used to pay IHT.

https://www.gov.uk/paying-inheritance-t ... nk-account

[mc2fool]

Not a problem I currently have as the estate I am currently executor for has a spouse exemption, but this situation must arise and could arise in the future for estates for which I am named as executor, so I was wondering how it is handled. I know that it is possible to pay IHT in installments when property is involved, but it does not look as though this is allowed when the assets are in listed securities.

If someone has most of their savings in shares and/or funds/ITs and there is insufficient cash in the estate to pay IHT, how can executors proceed? It does not look as though brokers will let you sell shares without a Grant, which you cannot get before paying IHT!

So there isn't the same problem with savings in banks & building societies? They don't lock those accounts on being informed of the death and require probate before letting the executor(s) access them?

They do yes, but there is an arrangement, the "Direct Payment Scheme", that banks have with HMRC whereby IHT is paid directly from the bank/BS to HMRC. NS&I participate in this, so Premium Bonds and Savings Certificates can be used to pay IHT.

https://www.gov.uk/paying-inheritance-t ... nk-account

OK, thanks. Every day's a school day at TLF.

[hiriskpaul]

A little bit of googling has thrown this up:

https://towerstreetfinance.co.uk/iht-loan/

19.6%! Not a bad business to be in.

[yorkshirelad1]

They do yes, but there is an arrangement, the "Direct Payment Scheme", that banks have with HMRC whereby IHT is paid directly from the bank/BS to HMRC. NS&I participate in this, so Premium Bonds and Savings Certificates can be used to pay IHT.
https://www.gov.uk/paying-inheritance-tax/deceaseds-bank-account

The DPS is quite useful (and does work, I have used it, to get the bank to send funds from the deceased's accounts to pay IHT). It is possible to use e.g. deceased's NS&I Premium Bonds and Savings Certificates via the DPS to pay IHT. However, if there is cash available in deceased's bank accounts, and that could be used, it might be prefereable e.g.

• I hear on the grapevine that NS&I can be very slow in sending funds from Premium Bonds and Savings Certificates via the DPs to pay IHT, and that might slow down probate (even slower than it is at the moment reportedly), or exceed the six month limit for paying IHT.
• It is possible to hold the deceased's Premium Bond in the draw for 6 months after the date of death, so if that's practical for the exors, why not?
• Savings Certificates can be passed on intact to beneficiaries. In times past, that might not have been so exciting, but if it's ILSCs, with RPI (if you're still lucky enough to have some on RPI) and CPI currently at 14.2% & 11.1% annual respectively (Oct 2022 figs), that's a good deal And you can't buy them fresh, only available to matured certificates on roll-over. Not everyone's idea of an exciting investment, but could do worse at present for a beneficiary.

[seagles]

Not a problem I currently have as the estate I am currently executor for has a spouse exemption, but this situation must arise and could arise in the future for estates for which I am named as executor, so I was wondering how it is handled. I know that it is possible to pay IHT in installments when property is involved, but it does not look as though this is allowed when the assets are in listed securities.

If someone has most of their savings in shares and/or funds/ITs and there is insufficient cash in the estate to pay IHT, how can executors proceed? It does not look as though brokers will let you sell shares without a Grant, which you cannot get before paying IHT!

How strange, last week I decided to look at IHT, so as to give my daughter an idea on how it works. After doing an exercise on how it stands, i came up with the same thoughts. How would my daughter raise the funds to pay IHT. I do not keep much in banks/building societies, so how would she get hold of over £200k. So this thread has pre-empted me. I will read with interest. Already have a couple of pointers.

[kiloran]

Presumably if everything above the IHT threshold is left to charities, this problem does not arise?

--kiloran

[DrFfybes]

How strange, last week I decided to look at IHT, so as to give my daughter an idea on how it works. After doing an exercise on how it stands, i came up with the same thoughts. How would my daughter raise the funds to pay IHT. I do not keep much in banks/building societies, so how would she get hold of over £200k. So this thread has pre-empted me. I will read with interest. Already have a couple of pointers.

One of the reasons we both have max Premium Bonds. Ready cash, a bit of interest each month, and available to meet IHT.

Paul

[scrumpyjack]

As I recall Hargreaves Lansdown will sell shares to pay IHT in advance of probate but they may only do this when a solicitor is handling the estate.
I didn't need to sell shares where I have been executor but instead have personally lent cash interest free to the estate to pay the IHT

[hiriskpaul]

Presumably if everything above the IHT threshold is left to charities, this problem does not arise?

--kiloran

Correct, as there would be no IHT to pay.

[hiriskpaul]

As I recall Hargreaves Lansdown will sell shares to pay IHT in advance of probate but they may only do this when a solicitor is handling the estate.
I didn't need to sell shares where I have been executor but instead have personally lent cash interest free to the estate to pay the IHT

That's interesting. I wonder whether Hargreaves Lansdown and other brokers might allow disposal of shares if this was either written into the Will and/or had explicit instructions from the deceased to sell when they received a death certificate?

"Upon my death and presentation of a death certificate, I hereby instruct you to sell all of the shares in my ISA and shares and funds account".

[pje16]

If anyone does know the answer to the above, please confirm
It might be a good line to add to my will

[hiriskpaul]

If someone has most of their savings in shares and/or funds/ITs and there is insufficient cash in the estate to pay IHT, how can executors proceed? It does not look as though brokers will let you sell shares without a Grant, which you cannot get before paying IHT!

Yeah, you have to remember that probate does not exist to help the deceased, or the family or beneficiaries of the deceased. It is designed purely to protect the creditors of an estate, mostly the taxman of course.

If someone told me that I had 3 months to live then I would transfer all my assets to my loved ones. That would not legally avoid IHT but it would at least avoid probate. And it would then be for the taxman to claim his pound of flesh rather than putting the onus on the grieving relatives.

Old legal saying - possession is nine points of the law, or some such.

Would that avoid probate? I am not sure. The will still has to be proved and there may be other issues

A big potential problem I can see with that approach is when there are large unrealised capital gains in the estate. Selling before death would then result in a CGT bill that would be avoided if the disposals were done after death.

We kind of have that issue now, where my wife's Aunt wants to sell their holiday home, which they bought 40 years ago and is up well over 10 times the amount paid. That means there will be a big CGT bill to pay. That bill would reduce the size of the estate subject to IHT, but even so beneficiaries would likely be better off if my wife's Aunt did not sell. It's not clear cut of course as the property may fall in price and requires a lot of maintenance as it is grade 2 listed.

[scrumpyjack]

Having looked at the HL blurb, they will pay cash direct to HMRC before probate, but not sell shares. I think most banks will do the 'Direct Payments Scheme' whereby they pay cash from the deceased bank direct to HMRC before probate if the person dealing with the estate gets and HMRC IHJT ref number, which you do before submitting the estate IHT forms.

[hiriskpaul]

Having looked at the HL blurb, they will pay cash direct to HMRC before probate, but not sell shares. I think most banks will do the 'Direct Payments Scheme' whereby they pay cash from the deceased bank direct to HMRC before probate if the person dealing with the estate gets and HMRC IHJT ref number, which you do before submitting the estate IHT forms.

I have just clarified the situation with Hargreaves Lansdown and it appears that this is not correct. They will allow shares to be sold before probate and will pay money directly to HMRC, even though they do not support the IHT423/DPS form used to pay IHT. I think I was confused by the fact that they do not support DPS. They will also make payments directly to funeral directors and you can instruct them to sell everything in order to eliminate market risk.

The process is restricted however. You can say you want to sell everything, or you can provide a list of investments you want sold and they will sell 100% of each investment. That might not be what you want. I did not ask, but it would not surprise me to learn that disposals were done using their phone/postal fees instead of online fees. That works out at between £20 and £50 per holding.

It would be interesting to find out what other brokers do.


Edit: HL's rules are here: https://www.hl.co.uk/help/what-to-do-when-someone-dies

Can the HL investments be sold to help cover funeral costs or to pay for inheritance tax?
Yes. We can issue a Declaration and Indemnity form to the executor(s) or to the self-nominated administrator(s) of the estate instructing this once we’ve received the death certificate.

The ‘Declaration and Indemnity form’ can be used to sell non-pension assets for any of these three reasons:

To hold cash / avoid future market risk
To be used to pay funeral expenses
To be used to pay Inheritance Tax

Please note, any funeral expenses are paid directly to the funeral directors and any inheritance tax payments are made directly to HMRC. We will not make any payments directly to executors or administrators of the estate until we have received sight of the Grant of Probate (or equivalent).

I have the indemnity form.