"The executor can’t afford to pay the IHT that is required to get the Grant of Probate, but they need the Grant of Probate to allow them to sell the assets to pay the IHT – it’s a real chicken and egg situation."
We spoke to Richard (Dicky) Davies, business development director at Tower Street Finance, about the £2bn a year it estimates is tied up in locked estates because of Inheritance Tax (IHT) and its new lending products that make it easier and quicker for people to access their inheritance.
FR: Who are Tower Street Finance?
It’s a new kind of lender focusing on financial products for the Probate sector. It’s the brainchild of Andrew Bartle, founder of Lowell Financial, and provides financial products that make it easier for people to access their inheritance and/or unlock estates that have an IHT liability.
FR: Is it a problem for people to access inheritance?
Yes, most people don’t know it takes an average of 9 to 12 months for beneficiaries to receive their inheritance.
FR: What is the process when someone dies?
If there is a will it determines who receives the proceeds of the estate; if there isn’t there are a set of rules for dividing the estate between relatives. Most people use the services of a professional estate administrator (a solicitor, accountant, IFA or specialist Probate administrator) to manage the process.
The estate administrator works out if IHT is payable on the estate. If it is they are responsible for paying it before they apply for the Grant of Probate, which gives the administrator legal control of the estate. They work out what is in the estate and once all assets are sold and any debt paid off, they distribute the net proceeds to the beneficiaries.
FR: How do Tower Street Finance products fit into that process?
We’ve got two products, Inheritance Advance launched in June; it won an innovation award at the British Wills and Probate Awards in October. It’s for beneficiaries who want to access some of their money more quickly than the average 9 to 12 months it takes. It can be for any reason, to pay off debts, move house, help children through university, or just living expenses if people are struggling.
The second is our IHT Loan, which we launched in December. Executors can use it to pay the IHT so they can apply for the Grant of Probate. We estimate there is around £2bn a year in locked estates in the UK - that is an estate where the executor can’t afford to pay the IHT that is required to get the Grant of Probate, but they need the Grant of Probate to allow them to sell the assets to pay the IHT – it’s a real chicken and egg situation.
FR: How do these products work?
They’re a new type of regulated financial product where we lend against the value of the inheritance without the need to check the credit status of the individual or take a charge over any of the assets. Given we are dealing with people who have suffered a recent bereavement we do check they are not ‘vulnerable’ and have relationships with organisations to support them that we can refer them to.
With Inheritance Advance we’ll lend up to 60 per cent of acceptable net assets, cash, property, investments, etc. There are no monthly repayments and the advance is repaid from the estate before the proceeds are distributed to the beneficiaries. And if, for any reason, the inheritance proceeds are less than the advance, we take that risk. We don’t reclaim the shortfall from the beneficiary, or the estate, so there is no liability for the beneficiary.
FR: How can you provide an advance without checking the credit status of the person borrowing the money?
The individual does not repay the advance so their credit status is irrelevant. We are lending against the value of the assets in the estate and we work with the administrator to calculate the amount we will advance. It doesn’t even matter if the beneficiary has a job or not – they are not repaying the advance so we do not assess their affordability.
With the IHT Loan it is even simpler – we check what IHT is due on the estate, and that there are sufficient assets in the estate to repay the loan; the loan is paid directly to HMRC to satisfy the IHT liability. The IHT Loan effectively becomes a priority debt on the estate so there is no risk or personal liability for the executor.
FR: What are your charges?
There is a two per cent origination fee (capped at £1,500), which can be added to the advance/loan, and a yearly interest rate of 19.6 per cent. Interest roll up is capped at 30 months.
FR: Do you work with financial advisers?
Yes, we work with financial advisers, lawyers, administrators and accountants and offer to pay an introductory fee for customers they introduce.