Can I Sell the Deceased’s Property to Pay Inheritance Tax?

Paying Inheritance tax (IHT) is not always a straightforward matter, particularly if the amount due is more than you, the executor, have available to pay. If the estate left in the will is more than £325,000, then 40% of any amount over this threshold will need to be paid to HMRC. It doesn’t matter whether the estate is property only, a combination of cash in the bank and property, or just stocks and shares. Whatever the combination is, the IHT will need to be paid calculated based on its total value.

Property’s a problem when paying IHT

A problem often arises if the bulk of the estate is held in property, such as houses and land, as there is no one to negotiate with to access the cash to pay the IHT. An executor is not permitted to sell a property or distribute any of the estate until a Grant of Probate has been received. This won’t take place until the executor has been issued with a receipt from HMRC which states the IHT has been paid. So, basically it’s a catch 22 situation for the executor. The executor is faced with an IHT bill which can’t be paid because there is no cash available from the estate and the bulk of the estate’s value is held in property. The property can’t be sold even to pay debts, let alone IHT, until the Grant of Probate has been issued.

Dealing with IHT when there is no cash available

Once the IHT has been paid, a receipt is issued which is presented to the Probate Registry so a Grant of Probate can be issued. The problem is finding the cash if there is none held in the estate. Often, if there is cash available, the bank will release it for the purpose of paying the IHT bill.

The only way an executor can pay the IHT if the estate is tied up in property is to pay the bill out of his or her own pocket and get repaid when the Grant of Probate has been received. The property, or part of it, can then be sold to pay back the money owed. If you as the executor don’t have the cash available to pay the IHT, there are only two options available. You could borrow the money on a loan and pay it back once the estate is sold, or part of it has been sold, to pay the debt. Most banks are willing to go for this option if they know that the property can be sold to pay the debt. The second option, if the bank agrees, is to pay the IHT in instalments.

Deadline for paying IHT

It’s a requirement by HMRC that the IHT be paid no more than 6 months after the end of the month when the person died. Penalties are involved if this deadline is not met. HMRC offers little room for negotiations, as it won’t release a receipt indicating the tax has been paid until it has been paid in full, which means the executor can’t get Grant of Probate to distribute the estate and pay any debts. HMRC believes its actions are the only way it can guarantee getting the IHT due, as once the estate has been distributed getting the IHT paid is far more difficult.