With the recent Spring Budget came a relatively small update to Inheritance Tax ("IHT") whereby applications for a ‘Grant on Credit' no longer require Personal Representatives ("PRs") to seek commercial loans to pay IHT before they are able to apply for the Grant.

What is a Grant on Credit?

Where an estate is subject to an IHT liability, HMRC state that "The law requires Personal Representatives to pay all or part of the Inheritance Tax due on the deceased's estate before they can obtain a Grant" (please see here).

In practice, estate's which are asset-rich but cash-poor are likely to face greater struggles to settle the upfront IHT due. This therefore prevents the PRs from making an application to the Court for the grant which in turn prevents them from realising the estate's assets. A Grant on Credit aims to resolve this stalemate and allows PRs to take out the Grant under the proviso that efforts will be made to settle the IHT liability expeditiously.

HMRC consider Grant on Credit applications on a case by case basis subject to the circumstances surrounding the estate however, they are only approved in ‘exceptional circumstances'. PRs are required to show that they have explored all practical efforts to raise the requisite funds and, until recently, this included making enquiries to specialist lenders who offered IHT loans.

What does the change mean?

The Spring Budget now removes the requirement to make such enquiries. The Government have removed what could be quite an onerous loan agreement with high interest rates. It has however also perhaps delayed a line of finance for HMRC. The willingness to defer IHT payments in order to progress an estate could serve a dual function of raising additional funds for HMRC in the long run because their interest rates of 7.75% are considerably more favourable than some of the interest rates quoted by commercial lenders. This could ultimately save an estate money.

Whilst it is well received that these loans will no longer need to be considered, it is unknown what change this will have on the availability of Grants on Credit (if any at all). HMRC typically impose other requirements before approving Grant on Credit applications including placing a charge over property in the estate or requiring PRs to enter into legal undertakings with HMRC promising to sell assets at the earliest opportunity in order to settle the IHT liability. Will HMRC change their approach to these other requirements if there is an increase in Grant on Credit applications following this change? We shall keep an eye on this and be ready to review the impact of this change in a forthcoming blog.

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