Inheritance Tax & No Cash In The Estate: What Happens Next?

When someone dies, the value of their estate is calculated for inheritance tax (IHT) purposes. There is a timeline for when the IHT amount must be sent to HMRC – but what happens if there is no cash in the estate?

What Is Inheritance Tax?

Inheritance tax (IHT) is a tax that must be paid when the deceased person’s estate is worth more than a certain amount.

Everyone has an allowance and there is no IHT payable on this amount – the allowance varies for every individual, depending on their circumstances.

As a guide to the IHT allowance, these are the main rules:

• Everyone in the UK has a Nil Rate Band Allowance of £325,000
• Individuals who owned property and leave it to direct descendants have a Residence Nil Rate Band Allowance of up to £175,000 depending on the value of the property
• Surviving spouses or civil partners estates can claim any unused amount of their deceased spouse or civil partner’s Nil Rate Band Allowance or Residence Nil Rate Band Allowance when they die

There are other factors that influence the allowance, including gifts that are made in a person’s lifetime and whether some of the estate is left to charity.

How Much Is The Inheritance Tax?

There is no inheritance tax to pay if the deceased person’s estate is worth less than the allowances.

All amount over the allowances is subject to IHT at a rate of 40%. The exception to this is when 10% or more of the estate is left to charity, when the IHT rate would be reduced to 36%.

When Is The Inheritance Tax Payable?

Inheritance tax is payable by the end of the sixth month after the date of the deceased person’s death.

Executors are responsible for ensuring all owed IHT is paid by this date or they face penalties and interest charges from HMRC.

Is It Easy To Pay Inheritance Tax?

Collecting the assets of an estate can be time consuming and often, six months isn’t long enough to secure the assets and have the cash in the estate.

Sometimes, there is no cash available when the IHT must be paid.

Estates can get stuck in a catch-22 scenario, whereby the Grant of Probate is needed to access the cash in the estate but it can’t be issued until the IHT has been paid by the estate. Or, cash in an estate can be tied up in property which then can’t be sold until the IHT is paid, and the estate can’t pay the IHT because it has no cash until the property has been sold.

What Happens When The Estate Has No Cash For IHT?

Normally, there are options available to executors when the inheritance tax is payable but there is no cash in the estate, to avoid facing interest charges and penalties.

As a guide, if there is no cash in the estate, executors can sometimes:

• Pay the IHT personally and claim it back from the estate when the cash becomes available
• Secure a short-term loan to cover the IHT amount owed and claim this back to pay off the loan when there is cash in the estate
• Ask the bank to pay the IHT directly to HMRC from the deceased person’s bank account, without the need for a Grant of Probate
• Ask HMRC to allow executors to pay the IHT in annual instalments over 10 years, with interest payable

The options are not always possible or a good choice for the executors, depending on their circumstances. It’s important to seek specialist legal advice before deciding how to pay the inheritance tax owed on the estate.

Helping You With Your Inheritance Tax Issues

Our specialist Wills and probate solicitors can help you with the administration of an estate, including any inheritance tax issues.

We will help to establish the value of the estate and how much, if any, inheritance tax is payable. Furthermore, we will support you in the administration of the estate to ensure you can fulfil all your duties as executor in the most straightforward and stress-free way possible.

To speak to one of our professional solicitors about your inheritance tax issue or for advice on Wills and probate in general, please contact us at our

Chorlton office on 0161 860 7123 or email chorlton@hlfberry.com

Failsworth office on 0161 681 4005 or email failsworth@hlfberry.com