Understanding Grants on Credit for Inheritance Tax

Executors and administrators (also known as personal representatives or ‘PRs’) are often surprised to learn that some or all the Inheritance Tax (IHT) usually must be paid before you can apply for probate. This can be particularly tricky when an Estate is asset-rich but cash-poor, such as when the main asset is a property. In these situations, obtaining a grant on credit may provide a practical solution and avoid potential delays obtaining the grant and the need for a commercial loan.

What is a Grant on Credit?

A grant on credit is an arrangement with HMRC which allows a grant of probate (or letters of administration in intestacy matters) to be issued before all the IHT has been paid.

HMRC agrees to delay collection of some or all the tax so that the PRs can obtain the grant, realise Estate assets and then use the proceeds to pay the tax.

Personal liability of PRs

PRs are personally liable for the IHT due on the deceased’s Estate. HMRC’s Inheritance Tax Manual confirms that PRs are legally responsible for ensuring the tax is paid, even if Estate funds are not immediately available.

As a result, HMRC expects PRs to consider all potential financial sources when meeting the IHT liability. This includes:

• cash held within the Estate,
• assets that can be accessed before probate, and
• the PR’s own resources, if necessary.

Easier access to IHT Grants on Credit

Grants on credit are now more readily accessible. The Inheritance Tax Manual previously stated that “only in the most exceptional circumstances will HMRC allow a PR to postpone payment.”

In the past, PRs were often required to demonstrate that they had explored borrowing options, which could be costly and impractical. However, as of 1 April 2024, HMRC no longer expects PRs to secure commercial loans to pay IHT before applying for a grant on credit.

PRs must still show that they have considered all reasonable funding options, but taking out a loan is no longer a prerequisite.

How does the process work?

To apply for a grant on credit, PRs must:

• submit the relevant IHT account form IHT400 to HMRC;
• write a letter to HMRC explaining why the tax cannot be paid before probate;
• confirm how much can be paid immediately; and
• set out how and when the balance will be paid once the grant is issued.

If HMRC agrees, the PR will be required to give a formal undertaking to pay the outstanding tax (together with interest) within an agreed timeframe. The PRs will also still be expected to pay as much of the IHT as they can before an application is supported.

How we can help

Applying for a grant on credit and understanding your personal responsibilities as a PR can be daunting. Our Private Client team regularly assists executors and administrators with IHT, probate, and dealings with HMRC, to ensure the process is managed correctly and with confidence.

[Co-written by Lauren Hole and Paul Watkins]