Families miss inheritance tax refunds on investment losses due to probate delays

Due to increasing delays in probate, many bereaved families are “at their wits’ end” and out of money about recovering tax on investment losses, legal and money experts warn.

Waiting times to unlock estates have been extended again, according to the latest official figures, following a warning from lawyers last month that grieving relatives are suffering emotional pain and seeing property sales collapse during the probate process.

Some are also missing out on inheritance tax returns because they exceed the one-year deadline to seek exemption from currency falls, prompting the government to extend this time limit.

Applying for probate is an essential step in taking control of an estate after someone dies, allowing executors to access bank accounts, settle debts, and arrange bequests.

The average waiting time for both paper and digital applications from filing to succession grant was 10.8 weeks in the first three months of the year, compared to 9.6 weeks in the last quarter of 2022.

The average delay for digital applications, which tend to be faster, increased from 7.3 weeks to 8 weeks over the same period.

Law firm Nockolds notes that delays are caused when applications are stopped because of a dispute, a problem with a will or errors in applications.

It blames staffing problems, saying that complex cases often require more expertise in finer court cases such as intestacy – where someone dies without a will – suggesting probate services are struggling to recruit and retain suitably qualified and experienced staff.

> How to avoid probate delays: find tips below to avoid common problems

Nockolds says nearly 90 per cent of probate applications are now made online, and as HM Courts & Tribunal Service has adopted a more streamlined ‘one-size-fits-all’ approach, it has increasingly struggled with some applications that are too complex are considered for this system. .

The company points out that a paper application is still required if someone is deceased and leaves no will, no surviving spouse, and has more than one child.

Partner Sarah Lockyer says: ‘About half of the cases we are instructed in are still unresolved 12 months after the death.

“We have seen many more cases of this kind in the past year in which next of kin are at their wit’s end and run into financial problems due to these delays.”

She adds: ‘The huge increase in delays in more complex probate applications suggests that there is a serious shortage of experienced and trained staff.

“Many of these cases will require a higher level of legal knowledge and judgment, which one can speculate is currently lacking.

“The aim is to stop fewer applications to speed up delivery, but there are often good reasons why many probate cases are stopped and if applications are handled quickly and carelessly, this could mean that grants are being awarded incorrectly.”

Lockyer identifies three financial costs, in addition to the emotional costs of a lengthy wait for probate.

– Extra professional costs, because executors often have to file additional returns, for example.

– Real estate sales are disappointing, as a result of which homes in a difficult real estate market are ultimately sold for considerably less than would otherwise be the case.

– Paying more estate tax than necessary if the grant of probate takes too long, as families cannot claim tax relief on stock price falls by exceeding a one-year deadline.

Lockyer says, “Investment losses are becoming a growing problem for bereaved people.

In many cases, shares are sold for less than probate value, but continued delays in processing probate applications mean that executors are losing the ability to claim estate tax relief.

“The government has resisted calls to extend the loss carry-forward from 12 to 18 or 24 months, despite mounting delays.”

Sean McCann, chartered financial planner at NFU Mutual, also highlights this issue, saying the government could extend the 12-month deadline to bring it into line with recoveries for properties that have fallen in value – where estate tax recoveries can be made up to four years after death.

“Some families experience long delays in probate, which has a knock-on effect on their ability to recover overpaid estate taxes,” he says.

Inheritance tax is based on the value of the estate at the time of death and is normally due within six months.

If the executors sell the shares or other qualifying investments at a lower value within 12 months of the death, they can recover the overpaid estate tax on the higher value.

‘Executors can only sell the shares if they have obtained inheritance rights.

‘It can take some time to collect all the details of the estate and complete the Inheritance tax forms to apply for probate, when you add up the delay in processing and any challenges from HMRC, you may be left with no way out. meet the 12-month deadline.’

What is the government saying?

Monthly figures inheritance waiting times are published hereand see the box to the right for trends over the past year.

HM Courts and Tribunals Service was asked for comment but did not respond at time of publication.

A spokesman for the HM Courts and Tribunals Service says: ‘Since December last year we have recruited and trained 100 new staff, rapidly increasing the number of grants processed – with March the highest number approved since January 2020.

“We know that delays are frustrating for customers and we are also looking at how we can improve our service to reduce waiting times.”

It says that ‘stopped’ applications often require further information from the applicant, such as corrections to necessary forms, before they can be processed.

More than 90 percent of inheritance law applications are completed digitally, which is faster than on paper. Meanwhile, probate cannot be granted until the estate tax has been settled with HMRC, which can also cause delays.

HMCTS is still seeing large volumes of it probate claims after the Covid-19 pandemic, and the death rate was higher than the five-year average until the end of summer 2022.

It tries to reduce waiting times for paper applications, which are more complex and take longer.

Waiting information includes applications that had to be stopped due to errors on the form or missing documents such as the Inheritance Tax form or the original will.

How to avoid probate delays

If you’re handling the probate process yourself, the president of Solicitors for the Elderly, Michael Culver, suggests the following tips to avoid some common problems.

1. If in doubt, ask an SFE member to review your application before submitting. Many of our members are happy to review and respond to any changes required to an agreed flat fee.

If you are applying online, you can share your password and credentials with your attorney, but a code will usually be sent to your email, so it’s best to do this in the same room where possible, or over the phone.

We recommend that you contact a lawyer for a flat rate in the office. We ask someone to have all their paperwork and credentials ready to review the online application together before submitting the application.

Michael Culver: Prolonged delays can be exhausting for grieving families who must manage all the anguish of losing a loved one

In central London, you might pay around £300 for an hour’s flat fee to review the online Inheritance Application, but this assumes no Inheritance Tax is due.

If there are estate tax forms to check, it wouldn’t be a flat fee as it would probably require an extra three to four hours of work and the total could be closer to £1,000.

This will vary by region and by company.

2. If tax is due, please allow 25 working days from sending the Inheritance Tax papers to HMRC before applying for an Inheritance Tax.

This is recommended even if HMRC has confirmed receipt of the paperwork in the meantime so they have time to share the paperwork with the tax authorities.

The lack of response from HMRC is one of the leading causes of an application stopping.

3. Make sure all names match those in the will or explain why if there is a difference.

4. If necessary, explain why an implementer is not applying for the subsidy.

5. Ensure that all documents, including the original will, are enclosed when sending documents to HMCTS.

6. If there is no will, explain why you are entitled to the grant.

> Read a This is Money guide to getting probate