Before an estate can be distributed to the beneficiaries of a Will probate needs to be granted. This process can take between 6 to 12 months to complete, during which time the beneficiaries will have to wait to receive their inheritance.
However, if any inheritance tax is due, this has to be paid within 6 months and before probate is granted. This can leave you in the tricky situation of having to find the money to pay IHT before the beneficiaries can receive their inheritance.
If you are the beneficiary of a Will you may be able to apply for a short term loan of up to 70% of the value of your inheritance, in order to provide you with some breathing space whilst the estate is wound up and disposed of.
Executors of a Will (or the personal representative where there is no Will) can also raise finance to pay an IHT liability where there are no funds available to make the payment. The loan can then be repaid once probate has been granted.
The individual allowance for inheritance tax in the UK is £325,000. Inheritance tax at the rate of 40% is payable on any estate above that value. For a married couple the allowance doubles to £650,000, with any tax due becoming payable on the death of the second spouse.
There are 3 main options for raising short term finance whilst you wait for probate to be granted:
With a bridging loan you can’t borrow against a property that you are due to inherit before probate is granted as you don’t yet own this. However, you can use a property that you already own as security for a loan, with the sale of the inherited property as your exit.
A bridging loan will allow you to raise short term funds until probate is granted and the property can be sold. This could potentially be on a first charge basis, or even a second charge basis if you already have a mortgage in place on your property.
If you are the Executor of a Will (or the Personal Representative where there is no Will in place) you can apply for a Probate loan (also known as an Executor loan) to raise funds to pay an inheritance tax bill.
This will allow you to settle any inheritance tax liability so that you can apply for Grant of Probate. Once probate is received you will then be able to disposed of the estate and the beneficiaries can receive their inheritance.
With a Probate loan there are no income and affordability checks so you can apply for a loan regardless of whether you own your own property or have a good credit rating. There are no monthly payments to make and there is no personal liability for the borrower as the loan is secured on the value of the estate.
A Legacy Release Beneficiary loan is a short-term loan that allows you to borrow up to 70% of the value of your share of an inherited estate in England and Wales.
In the case where there is a Will in place a loan can be arranged both before and after probate has been granted. If there is no Will and the deceased died intestate, then a loan is still available after the grant of letters of administration.
The loan is secured on the proceeds you will receive from the estate and is not secured on any property or land.
The loan can be used for any purpose and is repayable from your share of an inherited estate.
Potential uses could include:
The loan is designed for funding requirements between 3 to 24 months.
There are no penalties for paying off the loan early. This can be done either in one lump sum or in instalments.
The loan will have no impact on any other beneficiaries to the will as it will be repaid from your share of the inheritance.
In most cases you will need to be a resident in England or Wales and have lived in the UK for two years. You will need to be the beneficiary or executor of an estate of an individual who was domiciled and resident in England or Wales at the time of their death.
Lenders will require a professional firm appointed by the personal representatives of the Deceased to settle the estate, to confirm the assets and liabilities of the estate. They will also require a professional firm to take responsibility for the distribution of certain assets and the repayment of the loan. Where this involves the sale of a property this could be the conveyancing solicitor.
There is no requirement for monthly repayments or interest payments until the loan is repayable.
Some loan products come with a guarantee that if the final inheritance doesn’t cover the balance payable on the loan, the lender will cover the shortfall, providing that you have not defaulted under the terms and conditions of the loan.
If the estate is not wound up within 24 months the loan may become repayable by you before you receive your share of the estate.
Last updated: 22 November 2023 | © KIS Bridging Loans 2020