Dealing with the death of a loved one can be challenging enough, and having to decipher complex tax terms and procedures can make it even more overwhelming. One such concept that may surface during this time is the inheritance tax (IHT) levied on the deceased’s property that is passed on to beneficiaries.
You may find yourself in a position where, despite being owed a significant sum by way of legally entitled inheritance, you lack the on-hand funds to meet your own inheritance tax requirements, which can feel like something of a dead end but can be resolved quite simply (and affordable) with a bespoke financial solution.
Understanding current IHT thresholds
The inheritance tax threshold, or “nil rate band”, is currently £325,000. If the value of the estate, including the value of any assets given away or sold at a reduced price within the last seven years before death, is below this threshold, there will be no IHT payable.
However, if the deceased’s estate worth exceeds the £325,000 threshold, the portion exceeding the threshold is taxed at a rate of 40%. These high tax rates often put pressure on beneficiaries, especially if the majority of the estate’s value is tied up in non-liquid assets, like property. This is why many find it difficult to pay IHT, leading them to seek alternative funding options.
What are inheritance tax loans?
This is where an inheritance tax loan comes in. It is essentially a loan taken out to pay the inheritance tax due on an estate. These loans are generally short-term and are repaid once the estate’s property is sold off or other funds become available.
The main point of appeal with this type of funding is that it ensures the prompt settlement of the IHT bill, avoiding any potential penalties for late payment. Moreover, it buys time for the inherited assets to be retained and/or sold at a later date for their full value, instead of selling them off in a rush (at a potentially lower price) to reconcile tax debts.
Of course, being able to access the estate you are legally entitled to early is also a huge benefit. The issue has traditionally been (albeit somewhat ironic) that the more you are owed, the more difficult it is to meet your own tax obligation to complete the probate process.
How IHT loans work
When you apply for an IHT loan, a lender essentially offers funds secured against the inherited assets. The assets you will be inheriting are used as collateral against the loan, which technically means that the lender has the right to repossess them if you do not repay your debt as agreed.
Once the loan is approved, which can be as fast as a few working days, you can use it to pay your IHT bill, and the debt is later repaid when the inherited asset (usually property) is sold or from other funds.
Applying for an IHT loan
While it is possible to apply for an IHT loan directly with a lender, doing so is not always the best option. In terms of both getting the best deals and lightening the load for yourself, it is always best to seek independent broker support.
A broker can help you navigate the complexities of IHT loans, putting their knowledge and contacts within the industry to good use and making the process as smooth and simple as possible. Your broker will guide you every step of the way, helping relieve at least some of the pressure of your financial responsibilities during an already difficult time.
For more information or to discuss the potential benefits of inheritance tax loans in more detail, contact a member of the team today.