PREPARING AND LODGING THE DOCUMENTATION TO HAVE INHERITANCE TAX ASSESSED AND TO OBTAIN THE GRANT OF REPRESENTATION

The forms which have to be completed to obtain a grant of representation to the estate are a form which gives details of the deceased and of the applicants to the Probate Registry, and a form of account with supplementary pages which gives details of the value of the estate to the Capital Taxes Office. An applications pack including the form and advice leaflets can be obtained from The Personal Applications Section of The Probate Registry and the necessary forms to deal with inheritance tax can be obtained by telephoning the Inland Revenue Capital Taxes answerphone service on 0845 234 1020. Probate application forms can also be downloaded from the Court Service website www.courtservice.gov.uk and inheritance tax forms from the Capital Taxes Office website www.hmrc.gov.uk and inheritance tax forms from the Capital Taxes Office website www.hmrc.gov.uk/cto. There are local probate offices in different parts of the country but in the event of difficulty write to:

Probate Department
The Principal Registry
Family Division
First Avenue House
42–49 High Holborn
London WC1V 6NP

There are two types of inheritance tax account. The simpler form IHT205 is sufficient unless the total value (before deduction of debts and funeral expenses) of the deceased’s assets, including his share of jointly owned assets and the assets of any trust fund from which he had a right to benefit, together with the value of any gifts made by him in the 7 years before his death, exceeds £285,000. If it does exceed £285,000, form IHT200 must be used.

With the forms the Probate Registry and The Capital Taxes Office will send a guide to completing the forms and a note as to where and at what stage they should be returned and what is to be returned with them. There should be no difficulty in completing the forms if the procedures outlined above have been followed and the relevant information obtained. When the necessary forms have been filled in and signed by those applying for the grant, the Probate Registry’s form PA1 and the simpler form IHT205 or the probate summary form D18 should be returned to the Registry with one of the copy death certificates obtained when registering the death, the originals of any will and codicils and the fee for the application. If it has been necessary to complete form IHT200 instead of form IHT 205 it should not be sent to the Probate Registry, but retained for dispatch to the Capital Taxes Office after the Probate Registry has had an opportunity to peruse the papers and interview the applicants as explained later.

The District Probate Registries have local sub-offices at which applicants may choose to be interviewed but the papers should be sent to a District Registry and not to the local sub-office.

It is of the utmost importance to note that under no circumstances should any fastenings be removed from or anything ever be attached to a will or codicil in any way, even with a paperclip.

It is wise to keep a photostat copy of any will or codicil and it might also be useful to keep a photostat of any other documents sent to the probate registry, if this can be done without too much inconvenience.

After the Registry has read the documents, the applicants for the grant will be invited to attend at the Registry or a local probate office of their choice, by appointment, to affirm or swear on oath that the information which they have given is true. The attendance at the Registry also gives the applicants and the Registry an opportunity to deal with any matters which need to be clarified on either side. The applicants should take with them some form of identification and the documents and letters used to complete the application forms so that they can be checked. At the interview the probate summary form D18 is returned to the applicants and if it has been necessary to complete form IHT200 both this form and form D18 should be sent to the Capital Taxes Office. The Capital Taxes Office will then inform the applicants of the amount of inheritance tax it provisionally assesses as due and payable at that stage. Inheritance tax is normally due and payable when the applicants submit the form of account of the deceased’s estate to the Revenue or on the date which is six months from the last day of the month in which the death occurred, if the form has still not been submitted by that date. For example if the deceased died on 5 January and the applicants submitted the form of account to the Capital Taxes Office on 8 May, any inheritance tax will become due and payable on 8 May; if the form of account is not submitted to the Revenue until 15 September the tax will become due and payable on 31 July being six months following the last day of the month in which the deceased died i.e. six months after 31 January.

In respect of the following assets the tax can be paid by ten equal annual instalments, the first instalment becoming payable six months after the death or at the time the grant of representation is applied for, whichever is the earlier:

• land and buildings;
• growing timber;
• the net value of a business or an interest in a business as an entirety, as contrasted with individual assets of the business;
• controlling shareholdings in a company whether or not it is a quoted company;
• holdings of unquoted shares whose minimum value is at least £20,000 and which represent at least 10 per cent of the company’s issued share capital or if they are ordinary shares, 10 per cent of the company’s issued ordinary share capital;

• holdings of unquoted shares in respect of which the tax cannot be paid in a single payment without undue hardship;
• holdings of unquoted shares, if the tax on them and other assets for which payment by instalments is permissible exceeds 20 per cent of the tax payable by one person in the same capacity.

If tax is payable by the recipient of a gift of the above types of assets (or by his estate if he has died before the relevant date) because the giver survived the recipient by less than seven years, the option to pay by instalments can also be claimed, but only if the assets are still owned by the recipient at the date of the giver’s death or were still owned by the recipient at the date of the recipient’s earlier death. If they are unquoted securities they must also have remained unquoted throughout the entire period between the original transfer and the giver’s death.

When the asset is sold, or in the case of a trust asset it ceases to be held on trust, the instalment option ends and any unpaid tax becomes immediately payable.

Interest at a daily rate is charged on unpaid inheritance tax from the date it becomes due. In the cases of buildings, land which does not qualify for agricultural relief and shares in an investment or property company, interest is charged on the full amount of tax outstanding, but in the cases of the other assets which have the benefit of the instalment option interest is only charged if the instalment is overdue. The present rate of interest is 3 per cent per annum.

Any inheritance tax payable and not payable by later instalments, must be paid before the grant will be given to the personal representative. The Registry’s fee and the amount of inheritance tax, if any, depend upon the value of the estate involved.

If the personal representatives do not have sufficient, or indeed any, money to pay the inheritance tax and the Registry’s fee, but the estate includes National Savings Certificates, or SAYE contracts, or government stock on the Bank of England Register, or capital, deposit, children’s, bonus, first option, pensioners guaranteed income, premium savings, or income bonds, the Registry can arrange for these assets to be used towards payment of the tax and fees and the applicants should request this at interview with the Registry.

Similarly, if the deceased had certificates of tax deposits, i.e. money on deposit with the Inland Revenue to meet future tax liabilities, that money can be used to pay inheritance tax before the grant of representation is issued.

If the deceased had money on deposit with a building society or bank, the building society or bank will usually allow as much of that money as is necessary to be used before probate for payment of inheritance tax. The system is voluntary but as yet not all banks have joined the scheme.

Sometimes stockbrokers will arrange for securities held by the deceased in their nominee accounts to be used to pay inheritance tax and probate fees, but this is not possible if the securities are held in certificated form and not in the broker’s nominee account.

Payment of inheritance tax by using investments or deposits specified in the previous four paragraphs is made by completing and sending inheritance tax form D20 to the relevant institution which then makes the tax payment.

If there is no money or insufficient money on deposit to pay the tax, a building society or bank will usually be prepared to lend the necessary funds at interest for that purpose, and such interest is of course borne by the deceased’s estate and not by the applicants for the grant personally. If possible the borrowing should be made by way of loan and not overdraft so that the interest is tax deductible. Interest on the loan should kept separately identifiable from interest on a loan obtained for any other purpose so that the interest on the loan for probate fees and/or inheritance tax can be deducted for income tax purposes from interest earned in the first year of winding up the estate.

When the inheritance tax has been paid, the Capital Taxes Office informs the Probate Registry, and the Probate Registry will send the grant of representation to the applicant by post. This does not necessarily mean that the Capital Taxes Office has finally agreed that the figures entered on the forms and the basis on which the tax is calculated are correct. The Capital Taxes Office might write with further questions and demanding further tax, and because the personal representative is primarily responsible for payment of tax, it is wise to write to the office asking for a formal clearance certificate from inheritance tax before finally passing the estate’s money to those entitled. Formal clearance is obtained by sending to the Capital Taxes Office Form IHT 30 in duplicate, one copy of which the Revenue will return signed on behalf of the Revenue if it is satisfied that all the tax which is payable has been paid. The form can be obtained by post or downloaded from the Capital Taxes Office website.

THE PERSONAL REPRESENTATIVE’S POWER TO APPOINT AGENTS

When the Probate Registry has issued the grant of representation, the personal representative is fully empowered to administer the estate and wind up the financial matters and generally speaking he should do so personally. A personal representative is a trustee and he is bound by the various detailed and complex Acts of Parliament which regulate trustees’ powers to delegate their responsibilities. His powers to appoint agents and delegate his functions are limited both as to whom he can appoint, for how long they can be appointed and as to the purpose for which they can be appointed.

An agent appointed by a personal representative cannot:

• further delegate powers delegated to him;
• appoint nominees, or custodians;
• appoint additional or new trustees of the estate;
• take a decision concerning the distribution of the assets of the estate;
• decide whether fees shall be paid out of income or capital.

A personal representative who appoints an agent to manage investments for the estate must agree with the agent in writing the investment policy to be followed.

If the personal representative expects to be unable to act personally over a long period and that he will need to appoint an agent to act for him, advice should be sought from a probate or trust solicitor. It might be simpler to consider appointing the proposed agent as attorney to take out the grant of representation in the first place so that the duration of his agency will not expire.

REGISTERING THE GRANT

What registration involves – in general

Registering the grant means producing it to the organisations, e.g. banks, with which the deceased had assets as proof of the personal representative’s right to deal with the relevant asset.

At the interview with the Probate Registry the applicants will have been asked how many official copies (called office copies) of the grant were required and the copies will have been sent to the applicants with the original grant. An office copy bears the impression of the Registry’s seal and is as good evidence of the right to deal with the assets of the estate as is the original grant. When dealing with the title to land it is sometimes necessary to endorse a record of the dealing on the original grant of representation and produce it later to show that the endorsement was made. Moreover an original grant of representation by virtue of its nature cannot be replaced. For these reasons when registering representation, and for fear of the original grant being lost in transit, it is usual to register an office copy of the grant rather than the original grant.

Sometimes it is necessary to send passbooks or share certificates when sending an office copy grant for registration and it is suggested that reference be made to the specimen letters which are to be found in Appendix 1. Quoting the passbook or share certificate account numbers in the letters and keeping a copy of the letters will possibly assist if the original documents be lost in transit.

Shares, debentures and loan stock

An official copy of the grant should be sent to the company’s registrar with the relevant certificates as soon as possible, so that the registrar will be aware that future interest and dividend cheques should be made payable to the personal representatives and not to the deceased and to facilitate any subsequent sale or transfer of the shares or stock.

If it is intended to transfer the shares or loan stock to one or more beneficiaries, a completed transfer deed should be sent to the company’s registrar with the relevant share or loan stock certificate and office copy of the grant. Transfer deeds can be obtained from law stationers or from the company’s registrar and are simplicity itself to complete, but it should be noted that there is a section to be completed on the back of the deed.

The address of the relevant company’s registrar can be obtained from the tax voucher which is sent with dividend or interest payments, from the company’s website on the Internet or from the company’s annual report. The address is also usually printed on share certificates, but one should be aware that companies do change their registrars from time to time and the registrar named on the share certificate might not be the current one, especially if the security has been held for some time.

If the securities are held in a stockbroker’s nominee account instead of being certificated securities the grant of representation should be registered with the stockbrokers instead of registration with the Company’s Registrar.

Dividend or interest cheques

If dividend or interest cheques payable to the deceased have been received since the death took place, it will be necessary to send an office copy of the grant to the drawer of the cheque with a request that a replacement cheque be issued or the old cheque be amended into the name of the personal representative and the amendment initialled by the drawer.

Insurance monies and pension arrears

The companies involved will have been written to when they were notified of the death and asked to state their requirements to enable payment to be made and these should now be complied with.

If the policy cannot be found the company will pay out upon an indemnity being given and a statutory declaration being made as to the circumstances. Usually the companies will prepare and supply these documents.

When requesting payment of the sum due, ask for interest from the date of death to the date of payment and how the total sum payable is split between the policy monies and interest, so that the amount attributable to tax will be known when it becomes necessary to complete the tax return for the administration period.

Debts owed to the estate

If the deceased was owed money when he died or money became due to him as a result of the death or payable to him since death, an office copy of the grant should be sent to the debtor with a request that payment be made to the executors.

Property which is security for a mortgage or any other liability

Instructions should not be given for the transfer, sale or other realisation of any such property unless the personal representative is absolutely certain that the estate is solvent, i.e. that there will be sufficient assets to cover payment of inheritance tax, the funeral and other expenses, debts and liabilities, because if this is not the case the creditor has a right to take and sell the property and prove in bankruptcy for any balance of his claim. If the sale produces more than is owed the creditor must account to the estate for the amount by which the net proceeds of the sale exceed the debt.