I am assisting executors on the administration of an estate with a gift of a 50% interest in land/property which the Will states is subject to it’s own IHT. IHT on the land has been elected to be paid by instalments. The beneficiary already owns the other 50% (having previously inherited it from another estate).
The beneficiary is struggling to pay the next instalment of IHT and has asked what happens if they are unable to pay the IHT due on the gift. The share held by the estate has not been transferred out of the estate and will not be until the IHT position has been settled with HMRC.
I am looking for guidance as to what the effect of the beneficiary not being able to pay the instalments due for the property they have inherited. As the gift to the beneficiary was made subject to it’s own IHT, would the gift fail of the beneficiary cannot pay the IHT? If the estate is forced to pay the IHT as the beneficiary cannot, would the executors need to force the sale of the property so that the executors can be reimbursed for the IHT they have paid? Alternatively, can they assent the property subject to a charge?
Has anyone else come across this type of situation previously? Are there any other options available to the executors?
Even though the will places liability for the IHT on the devisee, so far as HMRC is concerned it is the executors who are liable to pay the tax. The liability will remain until the whole outstanding balance has been paid – so at least 10 years!
The executors could take a charge over the property and assent the deceased’s half share to the beneficiary, but that will not put the executors in funds to enable them to pay the IHT.
Ideally, the beneficiary should investigate if they can borrow money commercially with the property as security. This could allow the IHT to be paid sooner rather than later, and for the executors to assent the deceased’s half share to the beneficiary, thereby enabling the beneficiary to deal with the property as they might wish. Clearly, the executors would require that sufficient funds be paid directly to them to cover the outstanding IHT, together with interest and any potential penalties (if any instalments are missed in the meantime).
The alternative might be to seek the authority of the court under s.14 TLATA 1996 to force a sale of the property – a draconian action which, if raised, might encourage the beneficiary to look harder to see how they might be able to fund the outstanding IHT.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals