Inheritance tax is a tax levied on the deceased’s money and assets, while probate is the process of validating someone’s will and administering their estate. But do you have to pay inheritance tax before probate is granted?
In many cases, probate cannot be completed until any outstanding inheritance tax is paid. Precise timings can vary, however, depending on the complexity of the estate. Here’s what you need to know.
Understanding inheritance tax and probate
Inheritance tax is calculated based on the total value of the individual’s estate (accounting for certain exemptions). Normally, no inheritance tax is due if the estate is worth less than £325,000 or if everything above that threshold is left to a spouse, civil partner or charity.
Probate, on the other hand, is the administrative process of validating the will, assessing the estate’s value, paying any outstanding debts and distributing assets to beneficiaries.
This process is formalised through a document known as the grant of probate, which gives executors the legal authority to manage and distribute the deceased’s estate according to their wishes.
Do you have to pay inheritance tax before probate?
Typically, inheritance tax must be settled within six months of the individual’s death.
Probate, however, can be a lengthy process. Depending on the complexity of the estate and the presence of any legal challenges, it can take several months or even years.
But in many cases, the court won’t issue a grant of probate until the inheritance tax bill has been paid. This can create financial strain if most of the estate’s assets are not readily accessible.
Situations where this might occur include:
- the estate is large and complex
- assets or property cannot be sold within six months
- disputes or other issues hold up the process.
Provision for property-based estates
Thankfully, there are provisions to alleviate this potential financial burden, especially in cases where a substantial portion of the estate’s value is tied up in property.
In many cases, HMRC allows for the inheritance tax associated with property to be paid in yearly instalments over ten years. This gives executors more time to liquidate assets (such as selling a house) and settle the tax liability.
However, there is a caveat, as the unpaid tax is subject to interest. The interest is calculated from the end of the sixth month after the person’s death and will continue to accrue until the tax is fully paid.
Clarifying the inheritance tax and probate timeline
Here’s an overview of how these two processes interact:
- Valuing the estate
The first crucial step towards a grant of probate is determining the total worth of the deceased’s estate. This comprehensive task involves taking stock of all assets, including property, personal possessions, bank balances, investments and any other valuable items. Any outstanding debts and liabilities also need to be accounted for. It’s vital to be meticulous and accurate during this phase, as the estate’s value will dictate whether inheritance tax is payable and, if so, how much. Bringing in an accountant to assist with this valuation, especially for complex estates or valuable items, can ensure accuracy and compliance.
- Reporting to HMRC
Regardless of whether inheritance tax is owed, executors must send a detailed report to HMRC. This report helps HMRC assess if there is any tax to be paid and also serves as a record of the estate’s valuation. Reporting to HMRC is an essential part of the process, so you should ensure all information you provide is accurate and complete.
- Paying inheritance tax
If the estate is liable for inheritance tax, you’ll usually need to settle the bill within six months. The Probate Registry won’t issue the grant of probate until you have either paid the inheritance tax bill or made payment arrangements with HMRC.
- Applying for probate
Once inheritance tax is settled, the next step is to apply for probate. This legal document verifies the will and grants the executor the authority to administer the deceased’s estate. It usually takes four to eight weeks to obtain probate.
- Distributing the estate
Upon receiving the grant of probate, the executor can proceed with administering the estate. This involves settling any outstanding debts and then distributing the remaining assets following the will. It’s the executor’s responsibility to ensure that beneficiaries receive their rightful inheritance and that the distribution is carried out fairly and accurately.
The relationship between inheritance tax and probate can be complicated, especially if you’re managing a complex estate. You shouldn’t have to take on the responsibility alone, so why not access our comprehensive probate services?
We’ll help you apply for probate, guiding and assisting you through the process to avoid unnecessary stress and delays.
Do you have to pay inheritance tax before probate? Contact us today to speak to an expert.