Changes to inheritance tax Direct Payment Scheme for probate

When somebody dies, their personal representative must pay the inheritance tax (IHT) due by the end of the sixth month after the death. So, if someone died on 1 January 2020, the inheritance tax would be due for payment on 31 July 2020.

This can often cause problems because, generally, you need to produce the Grant of Probate to prove to the banks that you are the deceased’s legally appointed personal representative and get access to their bank balances. However, the Grant of Probate will not be issued until the inheritance tax is paid!

Historically, Executors would take out loans to solve this problem, but in more recent years, things have got easier with the introduction of HMRC’s ‘Direct Payment Scheme’ (DPS). If a bank is signed up to the DPS, and you complete form IHT423 when filing the deceased’s IHT return, the bank will pay the tax direct to HMRC from the deceased’s accounts before the Grant of Probate is issued. Where a liability exceeds the balance on one bank account, you can complete a number of forms IHT423 to use funds from other participating banks’ accounts up to the amount you need.

In a recent change, National Savings & Investments (NS&I) have joined the DPS, and form IHT423 has been amended to reflect this. Hopefully, this will help a few more personal representatives to avoid the need for costly loans to pay inheritance tax.

Need help?

If you need professional advice or assistance on probate or post-death tax matters, please speak to Ian Webster or Cindy Chaplin. Call 0330 024 0888 or email probate@larking-gowen.co.uk. You can find contact details on the Our People section of the  Larking Gowen website.

We are accredited by the Institute of Chartered Accountants in England & Wales to provide probate services.

Ian Webster