Rising Late-Payment Interest Charges and Probate Delays

As of 22 August 2023, His Majesty's Revenue and Customs has increased the rate of interest it charges on tax that has been paid late, from 7.5% to 7.75%.

The rise is linked to the increase in the Bank of England base rate. There have been questions raised about these charges, especially where late payment of tax is not down to the fault of the taxpayer.

Currently, there are delays at the Probate Registry, meaning that it can take up to six months to obtain a grant of probate. Until the Personal Representatives of an estate have a grant of probate, they will be unable to sell any property. This has resulted in Estates having to pay a huge amount of interest on Inheritance Tax that has been paid late.

The Society of Trust and Estate Practitioners (STEP) have highlighted the concerns of many experts about the impact this may have on bereaved families. Gill Steel, a private client law expert, trainer, and consultant, has cited an example of an estate consisting mostly of a house valued at £1.5 million. If there is no liquid cash to meet the Inheritance Tax bill of £470,000, and even if the first instalment of £47,000 is paid through a loan, interest is still running on the balance of £423,000. At the most recent figure of 7.75%, that amounts to interest of £32,782 over a year, plus the interest on the loan to pay the first instalment of Inheritance Tax due.

As a result, interest payable on Inheritance Tax is becoming a huge figure in estate accounts, even where the personal representatives have not delayed in any application for the grant and have acted as quickly as possible. At the moment, house prices are dropping, and people are struggling to obtain mortgages. This rise in interest rates for unpaid tax is therefore going to cause problems where high value properties cannot be sold, and the estate will be liable to pay interest on unpaid tax, until the property has sold. Given the current housing climate, it could take months, if not years for a property to sell and all the while, late payment of tax interest will be accruing.

Some practitioners have suggested that HMRC should delay charging interest in these circumstances, and that HMRC should be more flexible in accepting a charge being put on estate property. This would mean that when the property does eventually sell, HMRC's debt will be secured against the property and they will be paid from the sale proceeds, down the line.

When somebody dies, the executor named in their will ultimately has to ensure that the deceased's estate is properly wound up and their wishes in their will are carried out. Executors have a legal duty to act in the best interests of the estate. The executor role requires calling in, collecting and distributing the deceased's estate in accordance with their will. If the terms of the will aren't followed, if property is being sold at an undervalue, or if an executor is causing unnecessary delays in the administration of an estate, then action can be taken against them.