How to take out a bridging loan to pay inheritance tax?

Can I Take Out A Bridging Loan To Pay Inheritance Tax?

Yes, bridging loans can offer a quick solution to an otherwise impassable situation, i.e. you must pay inheritance tax (IHT) within six months after someone dies. 

The catch is that probate (access to inherited assets) will not be granted until all outstanding tax is paid – leaving people in a troubling dilemma, especially during the stressful time that comes with losing a loved one.

Bridging loans are a fast, flexible solution for financing difficult times such as these. They can be prepared quickly, giving you the time to pay off the tax owed.

Here we explain bridge finance as a way to resolve your predicament and how we can help with the administrative details to secure you the best bridging loan.

Why can’t you use inherited assets to pay inheritance tax?

The situation created by inheritance tax can become confusing – especially given the short window for payment. Without probate granted, inheritors will not have access to the assets necessary to pay IHT.

These rules are in place for understandable reasons. 

For example, if inheritors were to have free reign over the assets while IHT is outstanding, they could use these newly acquired funds to spend elsewhere – neglecting what is owed and consequently creating a situation in which it cannot be paid 

There are exceptions; time-sensitive assets like property, shares, and securities associated with a business may be accessed. However, instalments must be paid with interest over time on the IHT outstanding. 

What do you have to pay?

Eligibility for Inheritance Tax in the UK requires that the value of the deceased estate exceeds the £325,000 threshold.

If the estates’ value is above this figure, then inheritance tax must be paid at 40% on £325,000.

Additionally, married couples or civil partners whose estates are less than their threshold can add any unused threshold amount to their partner's – effectively doubling it.

It is important to note that inheritors don’t pay IHT on their inheritance. Although, they will need to pay income or capital gains tax on assets inherited when owed. 

What are your payment options?

If funds are available from the estate, then IHT can be paid directly to HMRC – alternatively, executors can pay the tax from their personal funds if this is an option.

Depending on circumstances, this can be a difficult ask from family and whoever may be the executors of the deceased’s estate. 

Instead, executors may take a third option – secure a bridging loan to ease the process.

How can a bridging loan help pay inheritance tax?

When you are due to inherit an estate, property that exists as a part of the estate will remain out of reach until probate is granted. Therefore, you cannot borrow against security that is not legally yours.

In this situation, a bridging loan can be taken out against any property you intend to sell – to raise capital and pay IHT owed.

This could be a property you own, or you could use property within the estate as the exit strategy to consolidate the loan down the line.

It is essential to consider your exit strategy carefully and ensure that it meets a lender’s criteria – lenders must be confident in the security offered within the estate; otherwise, they will not pay out funds. 

Bridge finance is a short-term solution – yet, you must be able to repay within the 12 months.

What are the benefits of settling an estate through a bridging loan?

During an emotional time, loans that bridge the gap give families options. It gives you breathing room to carefully weigh important financial decisions, which can significantly reduce conflicts when settling an estate.

Some parties may benefit more from a quick payout and prefer a fast alternative to secure assets.

There may be complications in splitting ownership of a family home, or parties may be involved more closely than others when it comes to a family business – which would require negotiation for a controlling share. 

Bridging finance allows the time needed in the wake of a family member's death. 

We can help you arrange estate financing

Our advisors have years of experience arranging quick, short-term financing for situations such as these.

Contact us for an appointment, and we can help discuss the details of finding a bridging loan suited to settling your inherited estate.