🔔 Direct Payment Scheme – paying some or all IHT from the deceased’s savings account BEFORE probate has been granted

Author: Anna Bowes
09th June 2021

It can be a bit of a Catch-22 situation. You will normally need to have received probate before you can access and distribute a deceased person’s estate but, depending on its value, there may be Inheritance Tax (IHT) to pay and if this is the case, you need to have paid at least some, if not all, Inheritance Tax that is due, before probate will be granted.

Lavender flowers

Inheritance Tax must be paid by the end of the sixth month after death. And if that tax bill is large, what can you do? Although you can claim the tax back from the estate and/or beneficiaries once you have obtained probate, it might still be tricky and potentially expensive to find the money in the meantime.

Well, one thing you may be able to do is ask banks and building societies to pay the tax from the deceased’s savings accounts directly to HMRC. This is called the Direct Payment Scheme (DPS). 

You can also use any National Savings and Investment (NS&I) products that the deceased may have held to help settle the tax bill under the DPS, although this method of payment may not be as timely as a payment from a bank or building society. You will need to obtain a claim form directly from NS&I to request payment. If the beneficiaries of the estate are in urgent need of their inheritance this may not be the best option.  

Not all savings providers are part of the DPS but, for those who are, executors can potentially use the deceased’s cash to fully/partially settle an IHT liability, allowing the grant of probate to be issued more quickly and avoiding the need to borrow in order to pay the bill, which preserves more of the estate for the beneficiaries.

So, what do you need to do?

If the bank or building society is signed up to the DPS, the process is as follows;

1. Ask the bank or building society to make you a ‘personal representative’ - each bank or building society will do this in a different way. You can do this before you apply for a ‘grant of representation’ (known as ‘probate’). This is known as confirmation in Scotland.

2. Get your Inheritance Tax reference number. You’ll need to get this from HMRC at least three weeks before you make a payment.

3. Fill in form IHT423. Send a separate form to each bank or building society you want to pay HMRC from.

4. Send Inheritance Tax Account form IHT 400, Probate Summary form IHT421, (Confirmation form C1 in Scotland) and any supplementary pages or supporting documents to HMRC.

HM Revenue and Customs 
Ferrers House 
PO Box 38 
Castle Meadow Road 
NG2 1BB 

When the bank or building society has made the payment, HMRC will stamp and return Probate Summary form IHT421 (Confirmation form C1 in Scotland) so you know the Inheritance Tax has been paid.

Some providers may not be part of the DPS (via HMRC) but offer a similar scheme and therefore require different forms. And these schemes may not even bypass the need for probate before access is granted - so it's important to check the details with the provider in question.

If you are worried about an IHT liability or want to discuss Inheritance Tax Planning, call our colleagues at The Private Office on 0330 323 9065.

A guide to bereavement

Dealing with the death of a loved one is one of the hardest things you will ever do, both emotionally and in terms of the administration that comes with someone passing away.

To help, our sister company The Private Office, has produced this free guide designed to provide you and your family with a useful source of information and explain the steps you need to take at this difficult time.

⇨ Request your free guide to bereavement

You might also like...

Securing your wealth for future generations

Securing your wealth for future generations >>

Ask Anna: What is your take on investing in a pre-paid Funeral Plan?

Ask Anna: What is your take on investing in a pre-paid Funeral Plan? >>

Probate Fees for some to rise by more than 2500% next year

Probate Fees for some to rise by more than 2500% next year >>