Q&A: Can you clear a £100,000 inheritance tax bill without selling up?

Q: My parents’ house was left to my brother and I, but due to the size of the estate we were liable to pay a hefty tax bill of over £100,000. We are unfortunately not able to pay a bill of this size through our savings and we’d ideally like to keep the house and rent it out, so we would rather not sell if we don’t have to. Could we instead take out a mortgage to pay the bill, or pay it in instalments in some way, perhaps through any rental income we make?

A: You don’t make it clear whether or not probate has already been granted and you are already in possession of the property - but if not, you must declare on the IHT400 form if you intend to pay the Inheritance Tax (IHT) bill in installments.

This form is also used to calculate how much IHT is due, but if you intend to pay in installments, the box can be ticked on the form for things that can take a while to sell - such as property or investments, like shares for example. You are then able to spread the payments over equal annual instalments over 10 years.

However, you will need to take any interest into account that will be added to the amount owed until it is cleared. Therefore, if you are considering a mortgage, you’ll need to ask an expert to calculate whether this is the right option for you - as even basic mortgage rates might be a more expensive way of repaying the tax in full.

An important issue is whether you and your brother were in a position to claim to transfer unused nil-rate band. If the parent who died first didn’t make full use of their nil-rate band by leaving everything to your other parent, for example, that would mean the nil-rate band available to set against your parents’ estate would be £650,000 rather than £325,000.

Also, more of the estate would be tax-free if you haven’t yet claimed the residence nil-rate band of £175,000, which is available to children who inherit their parents’ home. As with the normal nil-rate band, this can be doubled if it wasn’t used when the first parent died.

If you think you might be able to claim these additional reliefs, you will need to track down your parents’ marriage certificate and copies of their wills to accompany the inheritance tax claim forms.

If you haven’t already done so, you and your brother should update your will to include the property, plus, you should draft a lasting power of attorney document that would enable the other to take over the running of the property, such as pay the mortgage or the IHT bill, in the event that either of you become incapacitated either mentally or physically.

If you would like some legal advice about estate planning, or drafting an LPA or new will, contact Downs Solicitors to see how we can help.

More blog posts from this author

When does £7m leave you disinherited from a will?

In the past, we’ve written many blogs about the trials and tribulations surrounding wills and disinheriting direct descendants. But, what about circumstances where you chose to leave an amount which is a small slice of a large fortune - even if that slice is still worth £7m?

Who will pay my dad’s bills if he is unable to?

My father has recently been diagnosed with early onset dementia. My brother and I have been very supportive, but this news has been devastating for us all. I know I need to get my dad’s affairs in order, but I’m not too sure where to start. Is it possible for him to appoint someone to make decisions on his behalf?

Q&A: Can you clear a £100,000 inheritance tax bill without selling up?

My parents’ house was left to my brother and I, but due to the size of the estate we were liable to pay a hefty tax bill of over £100,000.  We are unfortunately not able to pay a bill of this size through our savings and we’d ideally like to keep the house and rent it out, so we would rather not sell if we don’t have to. 

More blog posts from this sector

Q&A: Thinking of including foreign assets in your will?

 My sister lives in America but she was born in the UK and still has family here, as well as a property and bank account. When making her will recently, she was advised that any assets held in the UK couldn’t be included in probate there. This is a little concerning, as her pension and savings bonds are all paid into the UK bank account - I am worried these will not be covered by a will if drafted in America. My question is, should I ask her to draft a separate will using a UK lawyer to cover these assets? And, if this UK will is then witnessed and verified in America, is it still valid?

When does £7m leave you disinherited from a will?

In the past, we’ve written many blogs about the trials and tribulations surrounding wills and disinheriting direct descendants. But, what about circumstances where you chose to leave an amount which is a small slice of a large fortune - even if that slice is still worth £7m?

Who will pay my dad’s bills if he is unable to?

My father has recently been diagnosed with early onset dementia. My brother and I have been very supportive, but this news has been devastating for us all. I know I need to get my dad’s affairs in order, but I’m not too sure where to start. Is it possible for him to appoint someone to make decisions on his behalf?

Our Team

Meet all of the team at Downslaw


Cobham

15A High Street
Cobham
Surrey
KT11 3DH

T: 01932 589599
F: 01932 505087

DX: 46102 COBHAM

Dorking

156 High Street
Dorking
Surrey
RH4 1BQ

T: 01306 880110
F: 01306 471230

DX: 57300 DORKING

Godalming

The Tanners
75 Meadrow
Godalming
Surrey
GU7 3HS

T: 01483 861848
F: 01483 431965

DX: 58308 GODALMING 1