HMRC has recently formally extended the ‘direct payment scheme’. This is the scheme whereby when making a probate application, it is sometimes possible to arrange for organisations holding assets on behalf of the deceased to release funds to HMRC direct to pay inheritance tax, before a grant of probate is issued in the estate. This can provide an estate with vital cash flow at a time when the assets have been frozen after a death.
In recent years, investment houses and other similar organisations have increasingly been prepared to release funds direct to HMRC before the grant of probate is issued. This change has now been formalised in an updated Form IHT423, which includes a section allowing for funds to be released from not only bank and building society accounts but also investment portfolios, pension policies and life assurance policies, to go towards the amount of inheritance tax payable. This is a welcome change, which should help to break the deadlock in estates where cash flow is problematic, which is very often the case after a death.
The chicken-and-egg nature of the need to pay the inheritance tax before a grant of probate is issued has long been a thorny problem for executors, so the more flexibility that organisations can show in this regard, the better. I have been pleasantly surprised in recent years about how frequently the direct payment scheme can be used in a probate case which includes an investment portfolio. The organisation on the other side of the equation has the certainty that they are paying direct to HMRC’s bank account, using the unique, identifying inheritance tax reference obtained by the executors, so reassuringly, fraud should be a non-issue.
Chiltern Wills is a Will writing business based in Beaconsfield and run by former London solicitor, Rebecca D’Arcy. Call us on 01494 708688 or email info@chilternwills.com for a free initial conversation about how we can help with Wills, Lasting Powers of Attorney and Probate.
