There has been much discussion in the press in recent months and years about delays at the probate registry and the negative impact that is having both emotionally and financially on bereaved families. So much so that a Parliamentary committee initiated an inquiry into the issues (see here). Although there are some signs of the backlog and delays being reduced, families should be aware that delays in the process can risk jeopardising the value of the estate.
Ordinarily, it takes at least three months to obtain a Grant of Representation (the "Grant") from the time of submitting the application. However, if the application is complex, for example the deceased was a foreign domiciliary or the Will was made outside of the UK, the wait can be more than double that. That means there can be at least a six month wait before families can access the assets of the deceased: such a delay could risk jeopardising the value of the estate.
Financial impact caused by delay
The delay in obtaining a Grant is distressing for a bereaved family, but it can also have a significant financial impact, even for very simple estates. Consider, for example, an estate where the majority of the value is in property and there is insufficient cash to pay the inheritance tax ("IHT") due in full without selling the property. Any available cash will be used to pay the first of ten instalments of IHT before the Grant application. Interest is charged on the balance of any unpaid IHT and will accrue on a daily basis (currently at a rate of 7.5%) until the Grant is issued and the property can be sold. To compound the issue, the delay in obtaining the Grant, delays the ability to sell the property and thereby the ability to pay the IHT in full and stop interest accruing. Until fairly recently interest rates have been low and the financial impact has been less significant; the position is quite different now that rates are so much higher. At current rates, outstanding IHT of £2 million would be accruing interest at almost £820 a day.
There are many other scenarios where Grant delays could give rise to significant financial cost or loss to the estate, for example:
- Where the deceased was the sole director and sole shareholder of a trading company. In this scenario the company might not be able to authorise payments or other key operational transactions, and certainly no board level decisions, until a new director is appointed, but a new director cannot normally be appointed until the deceased's personal representatives ("PRs") have a Grant.
- Where the deceased entered into a contract to sell a UK property before they died and the PRs need to complete the sale by the agreed completion date or risk losing the sale.
- Where the deceased had a loan which is overdue and penal rates of interest are accruing for every day of default and the only way to raise cash to pay off the loan is to get the Grant and sell estate assets.
- Where someone is occupying the deceased's property unlawfully and refuses to leave and the PRs cannot bring possession proceedings until they have a Grant.
- Where tenants of the deceased's property are refusing to pay rent and the PRs cannot bring a claim for rent arrears until they have a Grant.
What can be done?
Unfortunately, in most cases, there is no option but to be patient and wait for the Grant to be issued. In the meantime, the estate is in limbo, unable to collect-in and/or sell assets, in some cases unable to settle liabilities, and unable to distribute assets to the beneficiaries.
However, where there is a real need, such as in the examples given above, there are some options to consider:
- If there is actual or credible risk of loss to the estate, the PRs could apply for a limited Grant, known as a grant "Ad Colligenda Bona";
- If, again, there is actual loss or risk of loss, the PRs could apply for a full Grant using the expedited route;
- If it is 'just' a case of needing to sell an asset to pay the IHT in full and stop interest running, the PRs could apply for a full Grant on credit, following relaxation of the conditions to qualify for a Grant on credit on 1 April 2024.
What is the best fit?
Each option has its advantages and disadvantages. If the estate is expected to have an IHT liability but the PRs have not yet ascertained the estate, the PRs may have no option but to apply for an Ad Colligenda Bona Grant in order to collect-in and preserve the estate. However, it is only a limited Grant and will not allow the PRs to distribute the estate. Therefore, the PRs would need to apply for a second full Grant in order to distribute the estate, with associated costs consequences.
If, on the other hand, the PRs have ascertained the estate and are ready to apply for a full Grant, the less well-known "expedited Grant" route would be by far the better choice, as this would give them a full Grant with no need for the time and cost of a second application.
Finally, if the estate has insufficient cash or assets that can be liquidated pre-Grant to pay the IHT and sourcing alternate funding at a lower rate than the HMRC rate is delaying the Grant application, then the PRs should consider applying for a "Grant on credit", by which HMRC will agree to defer collection of the IHT, and with it the interest, until after the Grant is issued.
Word of warning
Even the Ad Colligenda Bona Grant and the expedited Grant applications are not as quick as anyone might like. Recent experience has shown it to take 7 weeks from submission of an application for the Probate Registry to issue an Ad Colligenda Bona Grant; and 8weeks from submission of the application, for the Probate Registry to issue a full Grant under the expedited application route.
How can we help?
We regularly advise our clients on how to apply for a Grant and undertake the full application and estate administration process. Where a Grant is needed urgently, we will advise on the best options available depending on our clients' circumstances. And, of course, we prepare the application papers and assist our clients in navigating the complex process of an urgent Grant application when the stakes are high.
If you have any questions arising from the issues raised in this briefing, please contact Nyree Craig or your usual Mishcon contact.