Looking beyond the headline cuts in National Insurance and residential property CGT and changes to the non-domiciled individual tax regime, a couple of inheritance tax (IHT) provisions sneaked into today’s Spring Budget which may help some PRs (personal representatives, i.e. executors of a will or administrators of estates where a person has either not appointed executors or left a will) when they are dealing with deceased estates.  

We regularly see estates where the deceased left an estate liable to pay IHT, but the estate is illiquid and does not have enough liquid assets (cash) to settle its tax liability.  This often happens where the estate consists almost entirely of property assets, and is not limited to low-value estates.  

Illiquid estates pose a major problem for PRs as they are generally liable to settle the IHT due (or the first instalment of IHT due on a property, if it is being paid in instalments, which is often the case until a property is sold) before HMRC will authorise the probate registry to issue a grant of probate.  The catch-22 situation is that the grant of probate (as the document which confirms the PRs' authority to administer the estate and authorises institutions to release assets to the PRs)  is the document required by the Land Registry which allows the PRs to sell the deceased's properties.  

In such situations, unless the PRs or family members are in a position to loan the estate funds to settle the tax, PRs would typically apply to obtain a ‘grant on credit’ (i.e. without paying the tax due before issue).  In order to do so, PRs would need to demonstrate that they had exhausted all attempts to fund the IHT including showing that they had attempted to raise a commercial loan to discharge the liability before a grant on credit would be permitted by HMRC.  In the past, commercial IHT loans were relatively commonplace, but are now seldom offered by financial institutions.  

Following the Spring Budget, from 1 April 2024, personal representatives will no longer need to supply evidence they have sought to obtain a commercial loan to settle IHT before they can apply to HMRC for a grant on credit (paragraph 5.46). 

While certainly not a huge concession, in the face of the high rate of interest levied on unpaid IHT (currently 7.75%), it does remove one logistical hurdle for executors facing an illiquid estate who need to obtain a grant on credit in order to realise assets as quickly as possible in order to settle the estate's IHT bill.  However, HMRC will still require a significant amount of information in the application for a grant on credit and at best, this concession will simply remove one task from the PRs ‘to do’ list and may possibly enable slightly quicker property sales (saving a little interest), but will not reduce the tax burden on death for families, nor make the process significantly easier for PRs.   

From 6 April 2025, agricultural property relief (APR) against IHT, normally only available for farmland and farm properties, will be extended to cover land subject to certain environmental land management agreements (paragraph 5.72).  Although only a very narrow extension of the current APR regime, it will provide a welcome addition for estates which have adopted environmental schemes.  Perhaps significantly, in light of the looming general election, the cost to the government is expected to be negligible until 2028-29 (at which point it is budgeted to cost £5 million). 

In terms of the future for IHT, the Spring Budget confirms that the government intends to consult on a change to a residence-based IHT regime, rather than the current domicile-based system (paragraph 2.38) but has confirmed no changes to IHT will take effect before 6 April 2025 (paragraph 5.29).  Were this to come into effect post-election, it would represent a sweeping change for inheritance tax, and would align IHT with the wider non-dom regime changes set out in the Budget.