What is Grant on Credit and what does it mean?
The Spring Budget announced on March 6, 2024, includes significant changes to the current probate process. Starting April 1, 2024, Personal Representatives (PRs) such as Executors and Administrators can now apply to HMRC for a “Grant on credit” if they cannot pay the tax due when submitting the IHT400 form.
What Does This Mean for Estate Administration?
Inheritance Tax Payment Timeline
Inheritance Tax (IHT) on certain assets is payable within six months after the end of the month in which the death occurred. For certain assets like property, tax payments can be made in installments over ten years, though interest (currently at 7.75%) will accrue on any unpaid tax. HMRC requires all IHT due within six months to be paid before confirming to the PRs that they can apply for the Grant of Representation.
How to Pay Inheritance Tax
PRs can use the deceased’s assets to cover the tax and interest in several ways:
- Banks and Building Societies: Under the Direct Payment Scheme (DPS), participating institutions will release funds from the deceased’s account directly to HMRC.
- National Savings Investments (NSIs) or British Government Stock: These can be used to pay the tax.
- Cash Funds in Investment Portfolios: Sometimes cash held within investment portfolios can be released for tax payment.
PRs are personally liable for the IHT on the deceased’s estate. HMRC expects them to explore all financial resources, including their assets, to settle the IHT. However, from April 1, 2024, PRs do not need to seek commercial loans for the IHT before applying for a Grant on Credit from HMRC, provided they have exhausted all other payment options.
Implications of Grant on Credit Changes
The new Grant on Credit changes aim to eliminate the need for high-interest loans in estate administration. However, there are concerns about the burden of proving the necessity of a ‘Grant on credit’ and the time it takes for HMRC to make a decision. In cases where a property sale is imminent, obtaining a loan for IHT and repaying it once the property is sold might be quicker.
HMRC has also stated that in estates where PRs or beneficiaries live in the estate property, they will avoid forcing the sale of the property to settle the IHT. Each case will be reviewed individually, and the estate will be monitored for payment.
Grant on Credit: Pros and Cons
Positives:
- Provides an additional option for PRs to raise funds for IHT.
- May prevent the need for estates to secure high-interest loans.
Concerns:
- PRs must provide a written undertaking to take prompt payment actions for the outstanding tax and interest. Without this, HMRC will not agree to a Grant on Credit.
- If a property is the only estate asset and must be sold to pay the IHT, PRs must agree to a specific timeframe for the sale, which can be unpredictable. This could force PRs to sell the property at a lower price.
- The new process’s practicalities will become clear only after applications for Grants on Credit are made, potentially increasing administrative burdens at the start of estate administration.
- Concerns remain about the turnaround time for HMRC decisions, as current processing times are already lengthy: 12.8 weeks for ‘non-stopped’ digital applications and 22.8 weeks for ‘non-stopped’ paper applications.
