New Clause 33 - IHT and executors

Finance Bill – in a Public Bill Committee at 6:30 pm on 25th June 2002.

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''. In subsection (2) of section 226 of the Inheritance Tax Act 1984, at end add—

'Personal representatives may pay the tax out of the estate remaining after death before probate has been granted.'.''.—[Mr. Flight.]

Brought up, and read the First time.

Mr. Flight: I beg to move, That the clause be read a Second time.

While we are dealing with death and approaching death, let me say that there is often a problem in the way that probate works in that nothing can be paid out of the estate until the inheritance tax has been settled, but people often cannot afford to pay inheritance tax until the estate is distributed. That usually leads to them having to borrow money to pay their inheritance tax, repaying the loan once probate is granted.

This is really a probing new clause, to point out that that is how the matter often operates and ask whether there is any particular reason for the existing requirements, or whether it is just a historic anomaly. The new clause would enable personal representatives to pay inheritance tax out of the estate remaining after death and before probate is granted.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

I thank the hon. Member for Arundel and South Downs for the constructive manner in which he has put his proposal and raised the issues. I accept that there is a case here, but there is a problem with the new clause, which I do not think actually deals with the issue in point. Although it states what executors can use, it does not oblige anyone else to let them have it. The issue is not just about tax law, but is a matter of the general law surrounding the administration of estates. It is not something that we can change at a stroke through amending the Inheritance Tax Act 1984.

That said, I think that the Committee will understand that we are interested in resolving those issues. We are working on them in close consultation with bank and building society representative bodies. The key is to address the concerns that such third parties have about releasing assets before they can be assured that the would-be executors have the authority, in the form of a completed grant of probate, to direct what should be done with them. We think that that can be done through an arrangement that asks banks and other deposit takers to release funds only if they go directly to an Inland Revenue account to pay inheritance tax. That would cover the intermediary against potential exposure to paying out a second time in the unlikely event that the process goes wrong in some way.

The hon. Gentleman will understand that it takes time to negotiate and implement new arrangements with which all concerned can feel comfortable. I hope very much that we can make some concrete announcements before long and I ask the hon. Gentleman to withdraw his new clause.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs 6:45 pm, 25th June 2002

This is a very pleasant end to our proceedings. I am delighted to hear that the Government are addressing this practical issue and I hope that it will be resolved before my turn comes. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.