How to pay inheritance tax before probate is granted using a bridging loan

How to pay inheritance tax before probate is granted with a bridging loan
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    Inheritance can often be a difficult subject to talk about, and with little knowledge of the matter, it can make dealing with someone’s passing much harder.

    When a person passes away, they may leave something to their family or someone close to them. While it isn’t an easy time, working out inheritance matters is necessary.

    Accessing funds to clear an inheritance tax (IHT) bill before the grant of probate can take time, depending on various factors. A bridging loan can be a viable short-term solution for people looking to pay IHT quickly, as they are typically for short-term financing needs under 12 months.

    Tax may need to be paid on any assets left to beneficiaries. With this in mind, probate is required for families or loved ones to have the legal right to deal with someone’s property, money and belongings once they have passed away.

    This article looks at the complexities surrounding inheritance tax and how bridging finance can be used to temporarily cover the costs involved with paying an inheritance tax bill before probate has been granted.

    With over 100 years of property experience, One provides clients with a fast and personal service to ensure their property-related finance needs are met. Contact us today to find out how we can help you.

    What is probate, and why can’t you access funds before it is granted?

    Probate is the legal process that validates and executes a deceased person’s will. It involves the court overseeing the distribution of assets, paying debts, and resolving inheritance tax issues.

    Until probate is granted, it can be challenging to access and distribute funds from the deceased person’s estate for several reasons:

    1. Legal verification: a legal framework is provided to verify the will’s authenticity.
    2. Debt settlement: probate ensures any outstanding debts and taxes are paid on the inherited estate.
    3. Asset protection: probate ensures that assets are not misappropriated or distributed incorrectly, protecting the estate and beneficiaries.
    4. Dispute resolution: probate provides an opportunity to resolve any disputes or challenges to the will’s validity.
    5. Executor appointment: the court may appoint an administrator to handle estate matters. This personal representative is responsible for collecting assets, making sure that debts and taxes are paid, and distributing the remaining valuable assets to the beneficiaries.

    How long do you have to pay an inheritance tax bill?

    The timeframe to pay inheritance tax can vary depending on the jurisdiction and specific circumstances. In many cases, the deadline to pay IHT is within six to nine months from the date of death. This period allows time for the estate to be assessed, the IHT liability to be calculated, and time to gather the necessary funds to pay interest.

    However, it’s important to note that some jurisdictions may provide extensions or variations to this deadline. For example, suppose the estate includes certain types of assets, like a residential property. In that case, it may be possible for you to request an extension or pay the tax in instalments over a specified period.

    Paying the inheritance tax on time is important to prevent you from receiving any penalties or interest charges. Consulting the tax authority or seeking guidance from tax professionals is advisable to help you better understand the specific deadlines and requirements for paying inheritance taxes.

    Bridging loans for probate and inheritance tax bills

    If you are the beneficiary of an estate where the assets are either inherited property or land, then you may not have sufficient funds to pay inheritance tax until after probate allows you to access the estate’s assets.

    In this situation, bridging loans can be a useful short-term finance option for paying inheritance tax before probate has been granted.

    How can bridging loans help to pay inheritance tax?

    Bridging finance bridges the gap between the immediate need for funds and the eventual release of funds – offering a quick and flexible financing option for beneficiaries to promptly settle the inheritance tax liability.

    When someone passes away, their estate typically goes through probate, during which the assets are assessed, debts are settled, and personal liability for inheritance tax is determined.

    By obtaining a short-term bridging loan, beneficiaries receive some breathing space and can access the necessary finance to pay the IHT liability promptly.

    The bridging loan amount is typically based on the expected inheritance bill, and most bridging lenders will require evidence of the estate’s market value and expected distribution. The interest rate for bridging loans is often higher than the interest charged on a traditional bank loan, reflecting the short-term nature and higher risk associated with such short-term loans.

    You can pay the bridging loan outstanding balance in full once probate has been granted and the other assets are liquidated. You can then use the proceeds to clear any interest accrued. This enables beneficiaries to fulfil their obligations without delays and allows for the smooth progression of the process.

    It’s important to carefully consider the terms and conditions of the bridging loan, including interest rates, fees, and repayment terms. Talking to a financial advisor, broker, or estate planner can help you navigate the process and ensure a bridging loan is suitable for your situation.

    Read more about bridging loans and why you should work with a bridging loan broker.

    Benefits of using a bridging loan to pay off an inheritance tax bill

    If you are in a situation where you need to pay off an inheritance tax bill, then using bridging finance can offer several benefits, including immediate access to funds, increased flexibility to work out legal matters and relief from time pressure, allowing you time to process events and grieve.

    A bridging loan provides personal representatives with immediate access to funds, meaning you can settle the tax liability promptly and avoid any potential penalties for late payment. They can give you and any beneficiaries more time to figure out plans for the inherited property and other valuable assets.

    Bridging loans also provide repayment flexibility, as they can be repaid once the estate’s assets are liquidated after the grant of probate. You can have peace of mind that you won’t be expected to pay anything upfront should you need time to organise your finances.

    Get in touch with One today

    One are experienced property professionals finding clients the best deals in the marketplace. We will match your specific needs with the best service to give you tailored solutions to your bridging finance needs.

    Speak to a specialist today!

    Conclusion

    If you need to pay inheritance tax before probate has been granted for your inherited property or assets, then you may need to find a short-term finance solution.

    A bridging loan is a short-term loan that can provide the necessary funds for you to pay off the IHT bill while you wait for probate to be granted.

    It is important to consider the terms, interest rates and fees associated with bridging loans. Consulting with financial advisors, tax professionals, or estate planners can help assess the viability of a bridging loan and ensure it aligns with the specific needs and circumstances surrounding the inheritance tax payment.

    Bridging finance can be arranged quickly and can offer a convenient and efficient solution to address the immediate financial obligation of an inheritance tax bill.

    FAQs about paying inheritance tax with a bridging loan

    To learn more about using a bridging loan to pay an IHT bill, check out our most frequently asked question or contact us today:

    Mark Piper
    Mark Piper

    Mark is the senior advisor at One Commercial Loans and has a wealth of experience in bridging and property finance.

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