Robert Husband, Chief Executive Officer at Tower Street Finance, explains the risks associated with applying for a grant on credit from HMRC, before other forms of probate lending.
His Majesty’s Revenue and Customs office has clarified its position on how and when it will be prepared to offer a grant of probate on credit where inheritance tax is due to be paid, and in doing so, it casts doubt on the approach that is often used by professional estate administrators.
Using a grant on credit, executors of estates that are large enough to attract inheritance tax but do not boast sufficient liquidity with which to cover it could effectively borrow the money from HMRC.
Now, however, HMRC has made it quite clear that executors should apply for probate lending before they can be considered for a grant on credit.
HMRC’s Inheritance Tax manual* currently states:
“Where funds cannot be released from the estate, the Personal Representatives are expected to raise funds through short term loans using their own assets or those of the estate as security. Some lenders may offer Personal Representatives probate loans – in effect these are short term unsecured bridging loans.”
As such, attempting to secure a grant on credit without first exploring options such as probate loans could result in a rejected claim, causing further delays to the probate process and risking additional interest charges from HMRC.
At Tower Street Finance, we’ve seen a surge in demand for our probate lending products, as a consequence of this.
The 12 months to the end of March 2023 saw a record number of executors using probate lending to cover IHT, which is understandable given the tax office’s rules on the matter.
However, we are concerned that there is still work to be done in educating some administrators as to the risks they may be creating for themselves – and the executors who have appointed them – if they attempt to gain a grant on credit without first exploring all the options available to them.
For those looking to learn more about probate lending, Tower Street Finance is offering free, one-to-one product training. Those interested should email partners@towerstreetfinance.co.uk for more details.
