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By Nicolae Trofin

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Can you use inherited premium bonds to pay inheritance tax bill

 I have noticed recently a spate of articles on the subject of reducing inheritance tax, all of which seem to end up with one thing – the seven year rule. They never mention the plight of the beneficiaries who have to find the cash to pay the tax before probate is issued and have access to the estate.

   I know that banks are supposed to make short term loans but for someone with little equity, they will make it complicated and will seize the chance to make a fast buck. I have read somewhere that HMRC will accept payment from Premium Bonds or some savings accounts, I wonder if you have any knowledge of this as I am able to make such financial arrangements to cover the expected £30,000 cost to save my beneficiaries the problems when the time comes.

PTJ, Herts

   Inheritance tax is payable before probate is granted, but assuming that the estate has liquid assets (cash at banks or building societies, NS&I investments, or stocks and shares with brokers) the executors can elect to pay the inheritance tax from the liquid assets held in the estate using the direct payment scheme before probate is granted, said Mai Brown of accountancy firm Blick Rothenberg.
  By completing form IHT423, the bank or building society will transfer funds to HMRC directly in settlement of the tax due. NS&I and investment managers will also usually liquidate stocks and shares and make payment to HMRC before probate is granted. Payments will only be made directly to HMRC.
  When the estate consists of property or unquoted shares, the executors can elect to use instalment options and spread the inheritance tax on these assets over 10 years, assuming that the assets are not sold. This way, only 10pc of the tax due on these assets is payable on the first due date, which is six months from the end of month of death.
  Inheritance tax is not therefore payable before the grant of probate, assuming that probate is applied for within six months of death. Interest, currently 3pc, is payable on any unpaid tax due, but some shares are free of interest.
  When a legacy is gifted to a beneficiary in the will, it is advisable to state whether the legacy is made free of tax. If so, the tax would be paid out of the rest of the estate.
If a gift is made during lifetime, it is also advisable to document this properly so that the executors have the necessary confirmation of when the seven-year clock starts. This also avoids any confusion as to whether the payment should be treated as a gift or a loan.

   If you have any concerns regarding your inheritance tax, as a Will writer in Bexhill-on-Sea,  I’ll be happy to offer you a FREE CONSULTATION NO OBLIGATION in your home, if you live in Sussex & Kent.

Source: Telegraph

This message was added on Monday 4th August 2014

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