IHT Loans: The Questions to Ask

IHT Loans are often considered at a moment of urgency so it’s important to ask the right questions

The tax deadline is approaching. Probate has not yet been granted. The estate may consist largely of property rather than cash. Executors can find themselves responsible for a significant liability without immediate access to funds.

In these circumstances, borrowing via an IHT loan can appear to be the obvious solution.

But IHT loans (also know as an Inheritance Tax Loan) are structured financial products secured against estate assets, usually property, and repaid once probate completes and assets are realised. Interest often accrues until repayment and so the true cost depends heavily on time and with probate, the time involved can be unpredictable.

Before entering into any arrangement to borrow in order to pay Inheritance Tax, there are several important questions that should be explored carefully.

Is Borrowing Actually Necessary?

The first and most important question is whether commercial borrowing is required at all.

HMRC allows certain Inheritance Tax liabilities, particularly those relating to property, to be paid in instalments over a number of years. Interest is charged on the outstanding balance, but in some cases that interest may be lower than commercial lending rates.

Executors should therefore compare:

• The cost of IHT loans

• The cost of HMRC instalment interest

• The impact of potentially selling an asset earlier

• Whether partial estate funds can be released

Borrowing should not be treated as the default response to a tax demand. It should be assessed alongside available alternatives.

What Is the Total Cost in Pounds — Not Just the Rate?

Probate loan interest rates alone can be misleading. Many IHT loans involve interest that “rolls up” and is repaid in a lump sum when the estate settles. In many cases, interest compounds — meaning it is charged not only on the original loan but also on previously accrued interest.

A rate that appears manageable over six months can become materially more expensive if probate takes twelve or eighteen months.

Executors should request clear written illustrations showing:

• The total repayment amount after 6 months

• The total repayment amount after 12 months

• The total repayment amount after 18 months

Seeing the cost expressed in pounds rather than percentages often provides a clearer understanding of impact.

For more detailed cost modelling, see Probate Loan Rates and the Associated Costs

Is the Interest Simple or Compound?

This is a technical question, but it matters.

Simple interest is calculated only on the original amount borrowed and compound interest is calculated on the original amount plus accumulated interest.

Probate timelines are not always predictable, compound interest can significantly increase repayment if there are delays in property sale or grant issuance.

Clarity on this point should be obtained before any agreement is signed.

What Fees Apply in Addition to Interest?

IHT loans may include more than just an interest charge.

There may be arrangement or facility fees, solicitors costs for probate, valuation fees and potentially exit charges. In some cases, fees are added to the loan balance, which means interest is then charged on those fees as well.

Executors should request confirmation of:

• All upfront costs

• Whether fees are deducted or added to the loan

• Whether there is a minimum interest period

• Whether early repayment triggers additional charges

Transparency is a key indicator of professionalism in the lending world. If you find a loan provider is not being transparent about charges and not providing them in a written document that is clear and easy to understand then alarm bells should be ringing. Consider approaching another provider, there are plenty of firms that are professional and FCA regulated.

What Happens If Probate Is Delayed?

No executor begins estate administration expecting unnecessary delay. Yet probate can be extended due to property market conditions, title issues, beneficiary disagreements or HMRC queries. IHT loans are structured on the assumption that repayment will occur within a projected timeframe. If that timeframe shifts, interest continues to accrue.

It is important to understand whether:

• Interest continues indefinitely until repayment

• There is a longstop date

• The lender has any right to force sale

• Additional fees apply after a certain period

Time risk should be clearly understood at the outset.

Is the Provider Regulated?

Where an IHT loan is secured against residential property, it may fall within Financial Conduct Authority (FCA) regulation, depending on structure.

Regulated providers must:

• Disclose costs clearly

• Follow conduct standards

• Provide formal complaint procedures

• Treat customers fairly

Not all probate lending arrangements are structured identically, and regulatory status depends on the product itself.

The Probate Network strongly recommends dealing only with regulated probate finance providers and verifying authorisation directly via the FCA register.

Regulatory clarity adds a layer of consumer protection that is particularly important when borrowing during a period of bereavement.

Is the Borrowing Proportionate to the Estate?

Executors have fiduciary duties. Any borrowing decision must be capable of justification as being in the best interests of the estate as a whole.

Questions worth considering include:

• Is the loan size proportionate to estate value?

• Does borrowing materially reduce the residue available to beneficiaries?

• Are there less costly alternatives?

• Has independent legal advice been sought?

An IHT loan may provide short-term flexibility, but it should not create long-term erosion of estate value without careful consideration.

Does the Exit Strategy Make Sense?

Every IHT loan should have a clear repayment route. In most cases, this will be the sale of estate property once probate is granted. Executors should realistically assess:

• How quickly the property can be marketed

• Whether the valuation is robust

• Whether there are title or planning issues

• Whether market conditions are stable

Overly optimistic sale assumptions can increase interest exposure if timelines extend.

A Final Word on Decision-Making

An IHT loan can be a practical solution to a genuine liquidity problem. In some estates, it may allow probate to proceed efficiently and prevent longer-term complications.

However, it is a financial product secured against estate assets and should be approached with the same care as any significant borrowing decision.

The Probate Network provides impartial educational information about probate finance. We do not recommend specific lenders. Where borrowing is being considered, proposals should be reviewed carefully with full cost modelling, regulatory verification and, where appropriate, independent legal advice.

By completing the form below, you may receive comparison proposals from up to three verified and regulated probate loan providers. When reviewing proposals, it is advisable to read alongside Loans Against Probate and How to Compare Products.

Clarity, transparency and proportionality should guide every decision to borrow in order to pay Inheritance Tax.