In the event that a person dies without making a Will, this situation can lead to delaying probate and could create significant tax problems.

Probate is a grant issued by the probate registry (a division of the courts) that executors may need to administer an estate. Getting this should be reasonably simple if the deceased person has left a Will, but is more complicated if, like most people, he or she dies ‘intestate’ – that is, without a Will.

It is also worth noting that if you get remarried, any Will you have previously written becomes invalid.

Dying without a Will means that you will not have outlined your wishes about who should act as an executor for your estate. The Administration of Estates Act 1925 outlines who can distribute the assets of someone who dies intestate. It will usually be a close relative. If the beneficiary is a child, there must be more than one executor.

Executors need to obtain a grant of probate, if there is a Will, or grants of letters of administration if there isn't. Collectively, these are known as ‘grants of representation’. These are not required for every estate if all the assets in the estate – minus any liabilities – are worth less than £5,000, or everything has been owned jointly.

Sometimes the banks will agree to release funds to an executor or administrator without the grant of representation. However, if the estate is worth more than £5,000, there are stocks and shares, land or property, or certain types of insurance policies, you need the grant.

The job of the executor, or administrator, is to make sure that the estate is properly administered, according to either the Will or the rules of intestacy. They also have to determine accurately whether there is any inheritance tax (IHT) due on the estate, and that it is paid.

If the estate is worth less than £285,000 (tax year 2006/07) – known as the nil-rate band – there is no IHT to pay. Anything above this is taxed at 40 per cent. If the assets are passing directly from husband to wife or vice versa, there is a spousal exemption, so no IHT liability. This is also the case for civil partnerships.
To mitigate this tax you can undertake IHT planning after someone has died by changing their Will with a ‘deed of variation’ to make sure they have used up their full IHT nil-rate band. So if a married couple have not made provision for IHT planning, the surviving spouse could vary the Will within two years.

Any IHT bill due has to be paid before you can get probate. Paradoxically, it can be difficult getting the money to pay the IHT bill ahead of probate. However, many banks and building societies have now agreed to release funds directly to HM Revenue & Customs to pay IHT bills to get around this scenario.

You have six months from the end of the month in which the person died to pay IHT. After that, HM Revenue & Customs will charge interest at 3 per cent on money outstanding.

If you have a property that creates an IHT liability, you may be able to pay HM Revenue & Custom’s bill in instalments over ten years to avoid having to sell it.
In the event that you need to take a loan from the bank to pay the bill, you will get tax relief on the interest, so this may be a better option than simply delaying payment – but it depends on your circumstances.

You cannot sell anything until probate has been granted, if you are trying to raise funds to pay the bill. The time it takes will depend on how complicated the estate is – it can take more than a year. Extra delays have been built into the system with HM Revenue & Customs now insisting that all estates over £5,000 should submit details of the contents with proper valuations.

There can also be complications if the deceased has property abroad. So if you have written a Will in this country but have property in France, it will be subject to the French IHT laws. So if you are buying property abroad, be careful about writing a new Will, as this would supersede any other Will.

If you require any more information on this subject, please e-mail or contact us for more information.

Article date: March 2007