London apartment hit with inheritance tax, avoided interest charges with £120,000 bridging loan

Finance: £120,000 | Location: Ealing, London

The death of a loved one is a sensitive time for families, which can be exacerbated with hefty inheritance tax bills that far exceed the available cash flow. With many people asset rich and cash poor, unlocking the funding is sometimes a complex and lengthy process.

London Apartments Acton

A client of ours recently found herself in a similar situation when her mother sadly passed away with a few assets, namely a large flat in Acton, Ealing worth £550,000, leaving our client with a substantial inheritance tax bill. 

The apartment didn't have a working kitchen and was in need of some refurbishments, which our client was worried may lower the probability of a fairly quick sale. It was imperative that the apartment was sold as quickly as possible as her own situation was becoming increasingly difficult. 

Due to the way the taxation works, the assets aren't released to the executor of the will until the IHT is paid, which is something our client wasn't able to do at the time, meaning the need for a solution was becoming time sensitive. 
She needed to obtain a £120,000 bridging loan to pay the IHT owed and spend £10,000 refurbishing the apartment, ready for sale.

Securing £120,000 bridging loan with no income and no savings

Our client recently lost her job, so she didn't have an income, tangible assets or savings, meaning obtaining a traditional loan proved complicated.

After two months of searching, she only had four months to pay the IHT bill before the HMRC added interest. In January 2023, the interest rate on overdue IHT increased to a whopping 6%, which was very concerning for our client. She was desperate for a solution as missing the 6 month IHT deadline would mean she would need to find an additional £636.40 to pay the first month’s interest.

As most apartments sell for £500-£600k in the Ealing area, our client knew she was able to sell the apartment, but she was not permitted to do so until the IHT was clear.

Her situation was becoming increasingly stressful and without an income, she found it very difficult to secure a traditional loan. She came to us for advice, and we were able to begin the process of helping her obtain the financing she needed.

How did we manage to help our client pay her inheritance tax bill?

Thanks to our outstanding relationships with brokers across the UK, we found a suitable lender within a week, allowing the bridging loan process to begin.

Two hundred twenty-three apartments were sold in 2022 for £500-£600k (Data source: HM Land Registry), so our lender had no issues lending £120k on a 12-month term to our client's mother's apartment valued at £550,000. The process was completed in just under six weeks, allowing our client to pay the IHT and avoiding interest charges from HMRC. 

Once the £110,000 was paid to HMRC, our client used the remainder of the loan to refurbish the kitchen and make cosmetic repairs to help with the sale. It was then put on the market and sold for £554,000 within 2 months, allowing her to repay the loan before the end of her term and prevent an additional 8 months worth of interest.

The benefits of using a bridging loan for inheritance tax payments

When it comes to paying inheritance tax, a bridging loan can offer several benefits, including:

  • Quick access to funds: Inheritance tax payments can often become due at short notice, and you may need the available funds to sell your assets or property to raise the money. A bridging loan can provide you with the necessary finances quickly and allow you to pay the tax on time, avoiding heavy interest.
  • Preserve family assets: If you're inheriting a property or other assets, a bridging loan can help you pay the inheritance tax without selling the assets. This can be especially important if the assets are of sentimental or historical value to your family.
  • Flexibility: Bridging loans are typically flexible and can be tailored to your needs. You can borrow the exact amount needed to pay the inheritance tax, and the loan can be repaid when the assets are sold or you have other funds expected in the future.
  • Lower interest rates: Bridging loans may have lower interest rates than short-term loans, such as payday loans or credit cards. This can help you save on interest charges, especially if you expect to repay the loan quickly.
  • Avoid penalties: Failing to pay inheritance tax on time can result in fines and interest charges. A bridging loan can help you avoid these penalties and preserve your credit score.
  • No ERCs: Most bridging loans don't incur early repayment charges, meaning you can pay your loan off early and save on interest repayments. If you can quickly clear the inheritance tax payment, you'd pay less than a traditional fixed-rate loan. 

Using a bridging loan for inheritance tax payments can provide peace of mind, preserve family assets, and offer flexibility and quick access to funds. It is a very useful way to unlock the finance needed to pay IHT and quickly release the additional assets tied up in probate.

Financial advice from experts on bridging loans for probate and inheritance tax

If you are looking for a bridging loan in London, to help alleviate the stresses of probate or inheritance tax, it's important to seek expert advice from professionals that can guide you through the process.

Some probate cases can be highly complex, especially if the property has outstanding mortgage payments. That's why we always recommend contacting a broker experienced in probate and inheritance tax, as they will be equipped with the right information to make the application process easier.

We also have a helpful probate guide that can help you understand how it works and navigate you through the entire process.

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