Banks Prosper From Unfair IHT And Probate Fee Rules

Many people have anxiously pondered how the new probate fees would be funded in the future. Recent research has found that beneficiaries are being forced to deal with contrasting rules between inheritance tax (IHT) restrictions and applications of probate that are forcing executors to take out loans.

Under the current archaic rules, IHT must be paid before and grant of probate will allow an executor to take control of the estate. In order to get the necessary stamped receipt from the tax office, some executors are forced to take out exorbitant loans in order to start the administration of the estate.

Finding new and inventive ways to ensure they improve their profits, most banks offer a product that will help people fund the IHT bill before they inherit the money from the estate. However, many people are finding that the interest rates exploit the situation caused by a conflicting after death tax system.

 The issue is only going to exacerbate further when you consider the increasing price of property that is causing more homes to creep over the initial threshold of £325,000. The record £5.3 billion raised from IHT this year will surpass £7 billion by 2023.

Additionally, a major consideration that the government are yet to elaborate on in regards to probate fees concerns how the fee will be claimed. In 2017, many financial institutions have said they would be unwilling to release funds for any perceived tax of this kind, which leaves many questioning how the money will be charged.

Presently, the legal service provider usually pays for the application and amalgamates this into their fee; they will be unwilling to do this in the future given the huge fee on some estates. Similarly, an executor or beneficiary will be unwilling and quite possibly, unable to pay for these fees.

Whilst many banks have said they will be unwilling to release funds from the deceased’s estate to pay for the fee, given their position on IHT loans, it would seem that the potential pay day from probate fee lending could be the next controversial type of loan.

Rachael Griffin, a tax expert at Quilter, the wealth management firm, said: “Weird quirks exist in the outdated inheritance system and paying IHT to access the estate is one of them. Sometimes the bill can be insurmountable for a family already stretched and having to consider the cost of funeral arrangements.

“Some financial offerings look to capitalise on the system, such as high-rate loans to pay the IHT bill, which at its worst is akin to pickpocketing a widow. The loss of a loved one undeniably leaves people vulnerable and they need to be treated as such.”

Lloyds, Britain’s biggest bank, said: “We ensure that customers are clear about the costs and executors must have a solicitor to represent their interests.”

It charged a 1% borrowing fee, with a £500 minimum, and an interest rate of 3 percentage points above Bank Rate. Currently borrowers would therefore pay interest of 3.75pc.

It seems shocking that the government are desperate to improve and amend the sector and yet the law is forcing executors and beneficiaries to lose significant amounts of money in order to access estates that are being passed to themselves and to administer the express wishes of the deceased.

Are you aware of people that have struggled because of IHT payments? What should happen to the law in order to ensure executors are not unfairly punished.