The Chancellor’s Spring Budget included good news for those facing inheritance tax (IHT) burdens. Many estates handled owe IHT but lack enough cash (liquid assets) to pay it upfront. This is common with estates primarily consisting of property, and not limited to smaller estates.

This creates a challenge for PRs (personal representatives, for example, executors). They’re typically responsible for settling the IHT bill (or first instalment on property, if applicable) before receiving official approval to manage the estate (grant of probate). However, to sell the property and access cash for the tax, they need that very same approval (grant of probate) from the authorities.

In these situation, executors might seek a “grant on credit” from HMRC. This allows delaying the IHT payment. Previously, securing this grant required proof of exhausting all funding options, including commercial loans.

Easier access to grants
As of April 1^st 2024, applying for a government grant from HMRC becomes simpler. You’ll no longer need to explore commercial loans before seeking a “grant on credit”. This eases the burden on families who might be stuck in a cycle of needing estate assets to pay IHT, but can’t access those assets until the tax is settled.

While not a significant change, it removes a step in the process for executors facing unmarketable estates. It may expedite property sales (saving some interest) but doesn’t reduce the overall tax burden. HMRC still requires substantial information for grant applications.

No IHT Rate Cuts…
Despite pre-budget rumours of a cut in IHT rate from 40% to 20%, the documents confirm no such change before April 2025. It is important to note that the current IHT rate of 40% has remained unchanged since 2009 and the Nil Rate Band (NRB) threshold remains at £325,000. Given inflationary pressures and rising property values, a future reduction in this rate could be a welcome development. If the Nil Rate Band for IHT matched inflation today, the threshold would be around £545,000.

Future of IHT
The recent IHT announcements have generated discussions, with some questioning whether they aim to influence voters, ahead of the elections. However, a more subtle analysis should consider the proposed shift to a residence-based IHT system. Meaning your residency status will determine which assets are taxed. Details will be ironed out through consultation, however potential measures include a 10-year exemption for newcomers and a 10-year “tail-provision” for those leaving the UK. No changes will occur before April 2025, but this could be a significant future development for IHT.