Worried About How Inheritance Tax Will Be Paid Before Probate?
Published / Last Updated on 05/09/2025
Inheritance tax (IHT) is in the news seemingly everyday at present with record IHT revenues for HMRC, unused pension funds to be included in our estates on death from 2027 and much talk on the coming Autumn Budget on 26th November 2026 with rumours on even more IHT as allowances may be reduced, the 7 year gift rule being extended to 10 years and IHT exempt gifts from excess/surplus income being stopped.
Given all the ‘noise’, even our new service that was launched just a few weeks ago “In Retirement, Investment, Inheritance Tax, Later Life and Care Planning Strategy Review” has proved popular.
See: Later Life & Inheritance Tax Review
What If My Kids Do Not Have Enough Money to Pay the IHT Bill Before Probate is Granted?
This is a question that also arisen several times in the last few weeks as probate will not be granted until HMRC confirms to the Probate Registry that all the deceased’s tax affairs have been settled.
- Difficult if there is no accessible money as bank accounts, investments, life insurance and pensions are usually frozen until probate is granted or if most of the wealth is in ‘bricks and mortar’ i.e., property that cannot be sold until probate is granted.
- In the past, many executors have been forced to take our short-term funding loans to pay the IHT bill to then proceed to probate and pay it back when probate is granted.
- There is a solution ….
HMRC’s Direct Payment Scheme
On death, the deceased’s assets are frozen and cannot be released until probate is granted, any credits/refunds can be credited to the deceased’s estate bank accounts but even outstanding bills/debts cannot be paid. The IHT Bill is different as there is the Direct Payment Scheme:
HMRC’s form IHT 423 can be sent to each of the following to make direct payments for the IHT bill to HMRC:
- Banks
- Building Societies
- National Savings
- Government Stocks (Gilts)
- Broker investment firms
- Wealth management accounts
The financial institution can then make direct payment of the requested amount to HMRC. This, we hope should settle the fears for many that money will be accessible to pay any IHT bill.
Pensions and IHT Payment
As mentioned above, unused pension funds to be included in our estates on death from April 2027. The draft legislation for changes to the Inheritance Tax Act 1984 also allow for unused pension funds to be allowed to make use of the Direct Payment Scheme but only the proportion of the IHT bill attributable to that pension scheme can be paid.
What if the Estate is Mainly or Only Property Meaning No Cash/Investment/Pension funds to Pay the IHT Bill?
HMRC will allow staged payments pending the sale of the property. But they are staged payments, so executors may still have to take short term loans out to meet staged payments if it takes a while to sell the property.
Using Whole of Life Insurance in Trust?
Another solution is to consider starting a whole of life insurance policy to cover the IHT liability on death.
- The policy should be in trust for loved ones meaning it is not included in eth estate for IHT and the sum assured can be paid out immediately to loved ones, thereby releasing funds to pay any IHT liability quickly to enable probate to be granted.
- Care should be exercised here as we have seen some life insurers who have not paid out until probate is granted but this is not common.
- If you have life insurance, consider contacting your insurer to place the cover in trust, if not already done so or contact us for help on existing schemes or even starting a new whole of life policy.
