Can I get bridging for an Inheritance Tax loan?

Inheritance Tax can place significant financial pressure on executors and beneficiaries, especially when estate assets are tied up during the probate process.

In such scenarios, bridging loans can provide a practical solution, offering immediate funds to settle tax liabilities and keep the estate administration moving forward.

On this page, we will explore whether you can use a bridging loan to pay Inheritance Tax, how these loans work, and their advantages and disadvantages. 

If you’re considering a bridging loan for your probate property, it’s important to have a reliable repayment strategy in place. Pairing your loan with a cash buyer, like The Property Buying Company, can streamline the process. 

By securing a cash offer in advance, you’ll be ready to complete the sale almost immediately after receiving your grant of probate, ensuring a fast and stress free resolution.

What is a bridging loan & how does it work?

A bridging loan is a short term financial solution designed to “bridge the gap” when you need funds to make a purchase (or pay off a tax) but are waiting for money to become available from another source, such as the sale of a property. These loans are commonly used by individuals looking to buy a new home before selling their current one.

Bridging loans are popular among:

• Landlords and property investors: For buying new properties or development projects.

• Homeowners: To secure a new home before completing the sale of their existing property.

• Executors: To cover costs during probate or inheritance processes.

• Businesses: For urgent tax payments or other financial needs.

Are there different types of bridging loans?

There are two main types of bridging loans, each tailored to different circumstances:

How do bridging loans work?

When you take out a bridging loan, the lender places a charge on your property. This charge determines the order in which lenders are repaid if the property is sold to recover debts. These charges can be split into two categories; first charges and second charges.

How is a bridging loan different from a traditional loan?

Bridging loans are designed as a short term solution between a financial need and the availability of funds, whereas a traditional loan is used for long term financing, such as buying a home via mortgage, funding a business or planning personal expenses and are typically repaid over several years or decades.

Bridging loans have higher interest rates (0.5% to 1.5% per month) due to the short term nature and higher risk for lenders, with the interest being calculated monthly. Traditional loans usually have lower interest rates (3% to 10% annually) and come at fixed or variable rates, with costs spread over the loan term.

Traditional loans take longer to process, usually taking weeks or months, and require detailed financial checks, including credit history, income verification and affordability assessments. But, bridging loans have faster approval processes, with some lenders completing in a couple of days — all while focusing on the security offered and your exit strategy.

Can you use a bridging loan specifically for Inheritance Tax?

Yes, a bridging loan can be a practical short-term solution to cover Inheritance Tax liabilities when estate assets are tied up and cannot be immediately accessed. These loans are specifically designed to provide executors or beneficiaries with the funds needed to settle tax obligations promptly, enabling the probate process to proceed without delay.

How does a bridging loan help with Inheritance Tax payments?

A bridging loan helps with Inheritance Tax payments by offering immediate access to funds to cover tax liabilities, here’s how it works:

1. The loan is secured against the value of a property (not the inherited property).

2. Bridging loans are known for their rapid approval process, ensuring that funds are available to meet the Inheritance Tax payment deadline.

3. The loan is repaid once the estate’s assets are sold or liquidated. Repayment terms range from a few months to a year, depending on the estate’s circumstances.

4. By addressing tax liabilities promptly, beneficiaries can avoid delays in probate, speeding up the distribution of the estate.

Can you borrow against Inheritance?

You cannot use the inherited property as collateral before probate is granted, as you don’t legally own it yet. Instead, you must use another property you already own as security for the loan.

Until probate is granted, the inherited property is legally part of the deceased’s estate, not owned by the executor or any beneficiary. As a result, it cannot be used as security for a loan because the lender requires a property title in the borrower’s name to secure the loan.

Executors have the authority to manage the estate, but this does not equate to ownership. Their role involves fulfilling the deceased’s wishes as outlined in the will, which includes paying debts, taxes, and distributing assets. However they cannot legally encumber the estate’s assets without property authorisation, which is granted through probate.

How quickly can you get a bridging loan for Inheritance Tax?

One of the advantages of using a bridging loan to pay Inheritance Tax is the speed and accessibility of the process. These loans are specifically designed for quick approval and disbursement, making them ideal for time-sensitive situations.

Typically, a bridging loan can be arranged and the funds disbursed within a few days to a couple of weeks, depending on factors such as the lender’s processes, the complexity of the application, and the availability of required documentation. This fast turnaround makes bridging loans an effective solution for meeting the 6 month Inheritance Tax deadline.

What are the steps for getting a bridging loan for Inheritance Tax?

Obtaining a bridging loan to cover Inheritance Tax involves fulfilling specific requirements and navigating a streamlined process with a specialist lender. These loans provide a fast, short-term financial solution for beneficiaries, ensuring tax liabilities are met promptly and probate can proceed without unnecessary delays. 

Here is a guide to the requirements needed to get a bridging loan:

1. Approach a specialist lender

Bridging loans for Inheritance Tax are a niche product, offered by lenders with expertise in probate financing and estate related situations, when searching for a lender:

• Experience matters: Choose a lender with a proven track record in handling inheritance related cases. This makes sure they understand the complexities of probate and tax obligations.

• Tailored solutions: Look for lenders who offer flexible repayment options suited to your estate’s circumstances.

• Broker support: Working with a bridging loan broker can help you find the best rates and terms, as they often have access to specialist lenders not available directly to borrowers.

2. Provide your details

To determine your eligibility, lenders will require a range of detailed information, prepare the following:

3. Asset based security

Bridging loans are secured loans, meaning the lender will place a charge against estate assets, usually property. There are two types of charges, which will both need a valuation of the secured asset to ensure it can cover the loan amount:

4. Valuation & approval

The lender will assess the property or asset being used as security through a formal valuation process, which includes:

• Property inspection: A RICS qualified surveyor may inspect the probate property to determine its current market value.

• Risk assessment: The lender evaluates whether the asset’s value sufficiently covers the loan amount and any associated fees.

Once approved, funds can often be disbursed within a few days, making bridging loans ideal for urgent financial needs.

5. Loan terms

Bridging loans are designed for short-term use, and this term reflects this:

6. Repayment expectation

Repayment is expected once the estate’s assets are liquidated or distributed, common repayment sources include:

• Selling an inherited property to cover the loan and any remaining liabilities.

• Using life insurance policies included in the estate.

• Liquidating assets like investments or valuables.

How much can you borrow with an Inheritance Tax bridging loan?

The amount you can borrow with an Inheritance Tax bridging loan primarily depends on the value of the estate’s assets, particularly any property used as collateral. Lenders typically offer loans up to a certain percentage of the property’s value, known as the Loan-to-Value ratio.

The higher the value of the property or assets used as security, the larger the potential loan amount. Lenders offer bridging loans up to 70% Loan To Value (LTV) of the property’s value.

For Inheritance Tax purposes; the tax-free threshold (Nil Rate Band) is £325,000 – with no tax being payable on the first £325,000 of the estate. Any value above this threshold is taxed at 40%.

If your property is valued at £500,000, here’s how the tax and loan would be calculated:

• Taxable estate: £500,000 - £325,000 = £175,000

• Inheritance Tax payable: 40% of £175,000 = £70,000

If the inherited property has a granted probate:

Lenders might offer up to 70% of the property’s value, meaning a potential loan of 70% of £500,000 = £325,000. Since you only need £70,000 to cover the Inheritance Tax, you can likely borrow this amount within the larger potential loan limit.

If the inherited property has not:

If probate has not been granted, the inherited property cannot be used as collateral for a loan because it is still legally part of the deceased’s estate. You would need to use another property you already own, such as your house, as collateral.

If your house is valued at £292,000 and the lender allows an LTV of 70%, the maximum loan you could secure would be £204,400. This sum could then be used to cover the £70,000 Inheritance Tax due. 

After probate is granted, the inherited property could be sold. The proceeds from the sale would usually be used to repay the bridging loan, including any accrued interest and fees, which avoids selling your own house to cover Inheritance Tax.

Are there limits on the amount you can borrow?

The borrowing limits for a bridging loan depend largely on the lender’s criteria, but most lenders cap the loan amount at approximately 70% of the house’s value, known as the loan-to-value (LTV) ratio.

However, some lenders may offer higher LTV ratios in specific circumstances, such as when the estate includes multiple valuable assets, or when additional security is provided. Each lender has its own criteria and maximum loan thresholds, so it’s important to compare options and consult with a tax advisor or bridging broker to find the best fit for your situation.

Pros and Cons of using a bridging loan for Inheritance Tax

Bridging loans can be a powerful financial tool for addressing Inheritance Tax, but they do require careful consideration and planning. Borrowers should weigh the benefits of speed and flexibility against the potential downsides of higher costs and risks.

Pros of using bridging loans

Cons of using bridging loans

Is using an Inheritance Tax bridging loan a good idea?

Using a bridging loan to pay Inheritance Tax can be a good idea in the right circumstances, but you will need to look at the estate in detail to make sure it is the right decision.

Using a bridging loan could help the estate or executors avoid selling investments or property to pay Inheritance Tax which would otherwise have been given to the beneficiaries. A bridging loan can act as a stopgap until probate is granted and the estate can be settled.

But, bridging loans usually need to be repaid within 6 to 12 months. If the estate settlement or property sale takes longer than anticipated on the open market, there’s a risk that the secured asset could be repossessed. 

To help mitigate this risk, it’s wise to pair a bridging loan with a cash house buying company that can buy the inherited property quickly — often within as little as 7 days after probate is granted. This ensures a fast and reliable repayment strategy, reducing financial stress and protecting your collateral.

Where can you find lenders offering Inheritance Tax bridging loans?

Finding the right lender for an Inheritance Tax bridging loan is important to make sure you secure the best terms for your financial needs and the estate’s situation. Lenders offering such loans generally fall into three main categories: large financing companies, banks and smaller independent lenders.

Working with brokers can also simplify the process by helping you compare options and choose the most suitable lender. Brokers have access to a wide range of lenders, including those not directly accessible to the public, they can help you:

• Compare interest rates, and repayment terms.

• Identify lenders that specialise in Inheritance Tax scenarios.

• Negotiate favourable terms on your behalf.

When you are narrowing down which lender is right for you, you should compare APR’s and additional costs, such as arrangement and valuation fees, and look for lenders with strong reviews and experience in estate financing.

Are there any alternatives to getting financing?

While bridging loans are a popular choice for quickly paying Inheritance Tax, they are not the only option. Depending on your financial situation, and the estate’s circumstances, you might wish to consider these alternatives:

What’s the best way to pay off a bridging loan?

The best way to pay off a bridging loan is to sell the inherited property after probate has been granted. Once the probate process is complete, you can speed the sale by working with a cash house buying company. These companies provide a guaranteed purchase, which can be arranged in advance while waiting for probate to be finalised.

Although completion cannot occur until probate is granted, having a buyer lined up makes sure there is a seamless transition.

By choosing this route, you can usually receive the sale proceeds in your bank account within 48 hours of completion. This allows you to repay the bridging loan quickly, minimising interest costs and reducing financial stress. To optimise this approach, make sure you select a bridging lender that does not impose early repayment charges, allowing you to settle the loan without incurring additional fees.

If you’re now wondering what the best cash buyer is? Well, that’s us! Here at The Property Buying Company, we are the UK’s most rated cash buyer, and have helped thousands of people move house over the past decade. Starting in 2012, we have grown exponentially, and have over 2,000 excellent reviews on Trustpilot.

Due to the nature of our business, we have learnt to be adaptable and flexible with each and every customer that comes our way – which is why we can buy a house in as little as 7 days (initial phone call to completion), but can tailor depending on the situation.

We are probate property cash buying specialists, and have a team on hand dedicated to making sure you are looked after at every stage of the process. Want to get the ball rolling? Find out how much we will offer for your probate property…