Probate Bridging Finance and Inheritance Tax Bridging Loans
Probate or inheritance tax funding problem? BMI will help you understand your options.
Dealing with probate can be stressful, especially where an estate includes property but there is not enough available cash to cover inheritance tax, legal costs, estate expenses or other time-sensitive payments.
Probate bridging finance may be considered where there is a short-term funding gap during probate or estate administration. It can sometimes help executors, beneficiaries or family members manage the period between a cost becoming due and funds becoming available from a property sale, refinance or estate distribution.
Finance is subject to status, valuation, legal work, lender criteria and a suitable exit strategy. Probate, inheritance tax and estate matters can be complex, so appropriate legal or tax advice should also be taken.
What is Probate Bridging finance?
Probate bridging finance is short-term property finance that may be used during probate or estate administration. It is usually considered where there is a clear need for funding, suitable security is available, and there is a realistic plan for repaying the loan.
In a probate situation, this could involve a property-rich but cash-poor estate. For example, the estate may include a valuable property, but the funds needed to pay inheritance tax, legal costs, maintenance costs or estate debts may not yet be available.
A bridging loan for probate is not the right answer in every case. Suitability will depend on the estate, the borrower, the legal position, the property being used as security, lender criteria and the proposed exit strategy.
Why probate and inheritance tax can create a funding gap
Inheritance tax can create a practical timing problem. HMRC says inheritance tax must usually be paid by the end of the sixth month after the person died, and interest may be charged if it is not paid by the due date.
In many estates, the main asset is a property. That property may not be sold quickly, may need probate before it can be dealt with fully, or may require work before it can achieve a suitable sale price. This can leave executors or beneficiaries facing a cashflow gap.
Common issues include:
> Inheritance tax due before estate funds are available
> A probate property that cannot be sold quickly
> Legal, valuation, insurance or maintenance costs building up
> Pressure to sell an inherited property below market value
> Beneficiaries waiting for funds to be released
> Delays caused by probate, conveyancing or family circumstances
In some cases, HMRC payment options or a grant on credit may be relevant. Since April 2024, personal representatives do not need to have sought commercial loans before applying for a grant on credit from HMRC. This is one reason bridging finance should be treated as one possible option, not the automatic or default solution.
Need help understanding your options?
BMI can help you explore whether probate bridging finance may be suitable, alongside other routes that may be available.
Example Use Cases
When might bridging finance be used during probate?
Probate bridging loans may be considered where there is a short-term funding need connected to an estate, and a clear repayment route exists.
Examples may include:
Paying inheritance tax where estate cash is not immediately available
An inheritance tax bridging loan may be considered where tax is due, but the estate’s funds are tied up in property or other assets. This needs careful advice, because HMRC may offer payment options in some circumstances and borrowing may not always be appropriate.
Avoiding a rushed property sale
If beneficiaries or executors feel pressured to sell a probate property quickly, bridging finance may provide time to complete a more orderly sale. This may be relevant where the property needs clearing, minor works, marketing or a longer sales process.
Paying estate costs while probate progresses
Some estates have costs that need to be managed before assets are released. These might include insurance, maintenance, legal costs, valuation fees or other estate administration expenses.
Refurbishing or preparing an inherited property for sale
Some inherited properties are dated, empty, damaged or difficult to mortgage in their current condition. In some cases, bridging finance for an inherited property may help fund works or support the period before sale or refinance.
Supporting beneficiaries before estate funds are distributed
A beneficiary bridging loan may be considered where a beneficiary expects to receive funds from an estate but needs short-term finance before the inheritance is distributed. Whether this is possible depends heavily on the legal position, available security and lender appetite.
Can bridging finance be used to help pay inheritance tax?
Bridging finance may be considered as a way to help fund inheritance tax where there is a short-term cashflow problem, but it is not always suitable and should not be treated as the only option.
HMRC allows inheritance tax to be paid in instalments for certain types of assets, including some property-related situations. HMRC also has a grant on credit process where personal representatives cannot access estate assets before probate has been granted.
That means the decision is not simply “bridging loan or nothing”. Executors and personal representatives should usually consider:
> Whether the estate has cash or investments that can be released
> Whether HMRC instalments may be available
> Whether a grant on credit may be appropriate
> Whether beneficiaries can contribute funds
> Whether professional legal or tax advice is needed
> Whether borrowing costs are justified by the estate’s position
> Whether there is suitable property security and a clear repayment plan
BMI can help you understand whether bridging finance may be available, but inheritance tax planning, estate administration and probate decisions should be discussed with a suitably qualified legal or tax professional.
What can probate bridging finance be used for?
Depending on the lender, legal position and circumstances, probate bridging finance may be considered for:
Inheritance tax funding
Probate-related cashflow gaps
Estate administration costs
Legal, valuation or professional fees
Maintaining or insuring an inherited property
Preparing a property for sale
Light refurbishment before sale or refinance
Repaying estate debts where appropriate
Giving more time for a property sale to complete
The key point is that the lender will want to understand why the money is needed, what security is available and how the loan will be repaid.
What do lenders consider in probate and inheritance tax cases?
Probate and inheritance tax bridging cases can be more complex than standard bridging finance. Lenders may want to understand both the property position and the estate position.
Typical considerations may include:
The legal position
A lender will need to know who can legally borrow, who owns the property, whether probate has been granted, and whether there is clear authority to use the property as security.
The available security
Bridging finance is usually secured against property. This could be the inherited property, another property owned by the borrower, or another acceptable form of property security, depending on the lender and circumstances.
The purpose of the loan
The lender will want to understand whether the finance is being used for inheritance tax, estate costs, property works, debt repayment or another probate-related purpose.
The exit strategy
Every bridging loan needs a clear exit strategy. In probate cases, this is often the sale of an inherited property, refinance onto longer-term lending, repayment from estate distribution, or sale of another asset.
The property itself
The lender may consider the property type, location, condition, value, marketability and whether it is currently occupied, empty, habitable or in need of work.
The borrower’s circumstances
Depending on whether the bridging loan is regulated or unregulated, the lender may also consider affordability, credit history, income, assets and wider financial circumstances.
What exit strategy might be needed?
A bridging loan is designed to be short term, so the exit strategy is one of the most important parts of the application.
In probate bridging finance, possible exit strategies may include:
Selling the inherited property
Refinancing the property once probate has progressed
Repaying the loan from estate distribution
Selling another property or asset
Refinancing another property used as security
Using funds released once probate or estate administration completes
The exit must be realistic. If the plan is to sell a probate property, lenders may consider the property’s value, condition, expected marketability, sale timescale and whether there are any legal complications.
If the exit strategy is weak, uncertain or dependent on too many unresolved issues, bridging finance may not be suitable.
Is probate bridging finance regulated or unregulated?
Probate bridging finance may be regulated or unregulated depending on the borrower, the property, how the finance is structured and whether the property is or will be used as a home.
This can be important where the property is residential, linked to a family member, or where the borrower is an individual rather than a company or commercial investor.
As a broad guide:
> A bridging loan secured against a property the borrower lives in, or intends to live in, may be regulated
> A bridging loan for investment, business or commercial property purposes may be unregulated
> Probate cases can be fact-specific, so the structure needs to be reviewed carefully
BMI can help you understand which type of bridging finance may apply to your situation and whether a regulated bridging loan or unregulated bridging finance route may be more relevant.
When probate bridging finance may and may not be suitable
Probate bridging finance may be useful where:
There is a clear short-term funding gap
The estate or borrower has suitable property security
There is a realistic exit strategy
The cost of borrowing is justified by the situation
The borrower understands the risks and repayment obligations
Legal and tax advice has been taken where needed
Probate bridging finance may not be suitable where:
There is no clear repayment plan
The legal position is unclear or disputed
The property cannot be used as suitable security
HMRC payment options or estate funds would be more appropriate
The cost of borrowing is too high compared with the benefit
The property sale or refinance is too uncertain
Family members or beneficiaries are not aligned
Bridging finance can be helpful in the right circumstances, but it is still a secured loan. If the loan is not repaid, the property used as security may be at risk.
Costs, risks and alternatives to consider
Probate bridging finance should be considered carefully because it can be more expensive than standard longer-term borrowing.
Potential costs may include:
> Interest
> Arrangement fees
> Valuation fees
> Legal fees
> Broker fees where applicable
> Exit fees, depending on the lender and product
> Additional costs if the loan runs longer than expected
The exact cost will depend on the lender, loan size, property, risk profile, term, security and exit strategy.
Before using bridging finance to pay inheritance tax or cover probate-related costs, it may also be sensible to consider alternatives such as:
> Using available estate cash
> Releasing funds from investments where possible
> HMRC instalment options
> Applying for a grant on credit where appropriate
> Beneficiary contributions
> Sale of Assets
> Legal or tax advice on the estate’s options
Unsure whether bridging finance is the right route?
Tell BMI about the estate, the property and the funding gap. We can help you explore whether probate bridging finance may be suitable and what other points you may need to consider.
Ready to Secure your Probate Bridging Finance?
If you are dealing with a probate property, inheritance tax bill or estate funding gap, BMI can help you explore whether bridging finance may be an option.
Tell us about the property, the estate position, the amount needed and how you expect the finance to be repaid. We will help you understand what may be available and what points may need further legal, tax or lender review.
You’ll get friendly expert advice, no jargon, and support every step of the way.
Call us: 01844 390910
Email us: info@bmimoney.co.uk
Or use the form below and we'll be in touch.
FAQs
about
Probate
Bridging
Finance
Can you use bridging finance to pay inheritance tax?
Bridging finance may be considered where inheritance tax needs to be paid and the estate does not have enough accessible cash. However, it is not always suitable. Executors should also consider HMRC payment options, estate funds, legal advice and tax advice before deciding whether borrowing is appropriate.
Do you have to pay inheritance tax before probate is granted?
Inheritance tax often needs to be dealt with before probate is granted, and HMRC says inheritance tax must usually be paid by the end of the sixth month after the person died to avoid interest. There are exceptions and payment options in some cases, so executors should check the position carefully.
Can I borrow against a property that is still in probate?
It may be possible in some circumstances, but it depends on the legal position, who has authority to borrow, whether probate has been granted, and whether the lender can take acceptable security. You should not assume that a property in probate can automatically be used as security.
What security is needed for probate bridging finance?
Bridging finance is usually secured against property. In a probate case, this might be the inherited property or another suitable property, depending on ownership, legal authority, lender criteria and the proposed loan structure.
What exit strategy will lenders want to see?
Lenders will usually want a clear and realistic repayment plan. In probate bridging finance, this may be sale of the inherited property, refinance, repayment from estate distribution, sale of another asset or another acceptable route.
Can inheritance tax be paid in instalments instead?
Inheritance tax can be paid in instalments for some types of assets, including certain property situations. Whether this is available or suitable depends on the estate and HMRC rules, so executors should take appropriate advice.
Is probate bridging finance regulated or unregulated?
It depends on the borrower, property, purpose of the loan and whether the property is used or intended to be used as a home. Some probate bridging loans may be regulated, while others may be unregulated. BMI can help you understand which route may apply.
What are the risks of using bridging finance during probate?
The main risks include cost, delays to the exit strategy, property sale problems, legal complications and the risk that the property used as security could be at risk if the loan is not repaid. This is why probate bridging finance should be considered carefully and with appropriate advice.
