Can You Get a Bridging Loan To Pay Inheritance Tax (& Should You?)
Line up a buyer for grant of probate
- Complete almost immediately
- Release funds in 48 hours
- Face no legal or selling fees
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A bridging loan can be used as a short term solution for covering Inheritance Tax when there isn’t enough cash, or liquid assets in the estate. These loans are designed to “bridge the gap” between settling taxes or expenses and selling or buying property – making them ideal for executors.
The use of a bridging loan, allows an executor to pay off the Inheritance Tax before probate is granted, and then sell the property (through us) to pay off the bridging loan:
The loan is secured against the value of a property (not the probate property).
Following a rapid approval process, the funds can be used to pay off the Inheritance Tax within 6 months of death.
Once probate is granted, you can sell the property to us, quickly.
The loan can then be repaid.
Repayment terms can range from a few months to a year - giving you flexibility.
Any remaining funds from the sale are added to the estate, and can be distributed to beneficiaries.
As the executor, you are not able to use the probate property as collateral before probate is granted, as you have no legal ownership of it. Instead, you must use another property, like your primary residence.
How do you get a bridging loan?
1. Find a specialist lender
You should look for lenders that advertise their expertise in probate financing and estate solutions. Also, check their Trustpilot score and see what customers have to say about them.
Bridging loans for Inheritance Tax are quite a niche product, offered only by a select few lenders, but they do exist:
Together Finance
Octopus Bridging Loans
Greenfield Mortgages
Barclays
HSBC
Clifton Private Finance
2. Meet the criteria
When you find a lender, you will need to provide the asset valuation of the estate, how much Inheritance Tax is owed, and what your personal financial situation is (can you afford to repay it etc).
3. Work out your charges
Because bridging loans are secured against property, you will need to get a valuation of your property to make sure it can cover the Inheritance Tax due. There are two types of charges which bridging lenders use:
First charge loans: Used when there are no existing loans on your property - it gives the lender priority over your property if it needs to be sold to recover debts.
Second charge loans: Used when there is already a loan against your property - the original lender will be repaid first, but there will be higher interest rates.
4. Valuation & approval
The bridging lender will evaluate your property through a RICS qualified surveyor to determine its true market value & its structural integrity. They will then double check its asset covers the loan amount.
Once approved, the bridging loan will be released within a few days.
5. Repayment
The usual repayment terms of many bridging loans are between 3 to 12 months, but some lenders may offer up to 24 months if the estate is particularly expensive. Extensions can be made available, but they will naturally incur higher interest rates – which are higher than usual mortgage rates to begin with.
The actual repayment of a bridging loan can come once the estate’s assets have been liquidated, like when you sell the property or use a life insurance payout.
How much can you borrow?
Since the probate property cannot be used as security, your property (or similarly valued asset) must be used. Most bridge lenders will offer loans of up to 70% Loan To Value (LTV) of the property. For example:
Estate value (including probate property): £500,000
Inheritance Tax (40%) due: £70,000
Executor’s personal property value: £290,000
Loan amount (LTV - 70%): £203,000
The risk here is if you are unable to meet the repayment terms, your property will be forced to sell and then the profits will be used to pay off the bridging loan.
If the probate property has probate granted, then you can secure the loan against the property – but Inheritance Tax will have already been paid.
Pros & cons of bridging loans
Bridging loans can be a great tool to pay off Inheritance Tax, but are high risk loans, and borrowers should consort any beneficiaries before they take one out. This can help protect yourself against potential disputes.
Pros
Fast funding
Once accepted, bridging loans can be released within 5 to 10 days, which is far faster than traditional mortgages.
Flexibility
They have flexible terms tailored to your needs, such as open or closed loans, first or second charges, and can have custom repayment terms.
No early repayment charges
Most bridging loans don’t have early repayment fees, which means you can settle the loan ahead of schedule and not have to worry about the interest rates.
Great if probate property is unmortgageable
Because the loan is secured against your property and not the probate property – if it's unmortgageable, it doesn’t matter!
Cons
Higher interest rates
Bridging loans can have interest rates of around 6% to 24% per year, where normal mortgages have rates around 4.32% (2 year fixed rate).
Repayment terms are short
Although the repayment terms can be flexible, they need to be repaid in quick timeframes – usually 6 to 12 months.
Risk of losing collateral
If you fail to repay the loan on time, your property could be at risk of collateral.
Is it a good idea?
Using a bridging loan to pay off Inheritance Tax can be a good idea, if you have your own property, there’s not enough cash flow in the estate, and the beneficiaries agree with you. If you are exploring this route, we would also recommend looking at executor loans, which are specifically designed to help you pay Inheritance Tax – with more competitive terms.
Ultimately, you will also need to decide if it aligns with the exit plan, because it’s all well and good getting the loan, but if you can’t repay it, you’ll end up losing your collateral.
Which is why, you need to have a quick house sale company lined up on the other side (cough cough, us). We are one of the UK’s leading cash house buyers, offering our cash buying service, online estate agency and an investor network - giving you the option of three different price points, at three different speeds.
Our cash buying arm can buy probate properties at an average of 81.77%, and help you sell in as little as 7 days, although the average sale is in 91 days. Our online estate agency can help you for 93.14%, with the average sale happening in 166 days.
Whereas, the cash sales through investors can give you a return of 88.68% of the market value, in 68 days on average.
If this is something that you would be interested in exploring, feel free to fill out our postcode form below, and we’ll be in touch within 24 hours with our initial cash offer.
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