Rapidly increasing late-payment interest charges put focus on probate delays

Thursday, 10 August 2023
The UK’s HM Revenue & Customs (HMRC) has again increased the rate of interest it charges on late paid tax, this time to 7.75 per cent.
HMRC

The sharp rise in the rate, which is linked to the Bank of England base rate, raises the issue of additional tax costs caused by delays that are not necessarily the taxpayer's fault. In particular, delays in obtaining a grant of probate can now attract punitive interest charges, where the inheritance tax (IHT) bill cannot be settled until after estate assets have been sold.

Legal expert Gill Steel TEP points out that current delays at the Probate Registry mean that it often takes six months to obtain a grant of probate. The result is that the estate may have to pay significant interest on tax paid late, seriously impacting on the net value. She cites an example of an estate consisting mostly of a house valued at GBP1.5 million, not an unusual event in London or south-east England. There is no liquid cash to meet the IHT bill of GBP470,000, and even if the first instalment of GBP47,000 is paid through a loan, interest is still running on the balance of GBP423,000. At the most recent figure of 7.75 per cent, that amounts to GBP32,782 over a year, plus the interest on the loan to pay the first instalment.

The result is that IHT interest is now becoming a significant figure in estate accounts, even in estates where all parties have acted as efficiently as possible. This is particularly relevant at the moment, when asset values are generally not rising. Some practitioners suggest that HMRC should delay charging interest in these circumstances. STEP supports this call. An alternative suggestion is that HMRC should be more flexible in accepting the placing of a charge on an estate property.

Tax advisors RSM UK point out that HMRC does not give tax relief for late payment interest paid. Moreover, unlike late payment penalties, it is not possible to appeal an assessment of late payment interest.

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