Bridging Loan to Pay Inheritance Tax – Fast Finance When You Need It Most
Losing a loved one is never easy. On top of the emotional toll, dealing with the financial aftermath can feel overwhelming.
If you’ve inherited property or other valuable assets, there’s a chance you’ll face an inheritance tax bill that needs to be paid before you can access the estate.
But what happens if the funds aren’t readily available? That’s where a bridging loan could help.
For the right circumstances, a bridging loan to pay inheritance tax is a short-term finance option that can offer you the breathing room you need to settle your tax obligations without selling assets under pressure.
What is Inheritance Tax?
Inheritance Tax is a tax that may be due on an estate after someone dies.
The estate includes everything the person owned, such as property, money, possessions, and other assets.
If the value of the estate exceeds the inheritance tax threshold (currently £325,000 at time of writing in 2025), tax is usually charged at 40% on anything above that amount. This threshold can be doubled to £650,000 if the estate is passed between married couples or civil partners.
While there are reliefs and exemptions that may reduce the liability, many estates still face a sizeable tax bill.
HMRC expects this tax to be paid within six months of the person’s death. However, probate, which is the legal process of distributing the estate, often takes longer. This mismatch can create a serious cash flow issue.
Why You Might Need a Bridging Loan
In most cases, inheritance tax is paid from the estate itself. But you can only access those funds after probate has been granted, and you often need to pay the tax before that can happen.
This creates a catch-22 as you need money to pay tax, but you can’t access the estate’s assets until the tax is paid.
If there’s not enough cash in the estate or if it’s tied up in property or other illiquid assets, it’s easy to see how things get complicated.
A bridging loan can potentially offer a way around this problem. It provides short-term finance quickly, giving you the funds to pay HMRC without delay. Once probate is granted and assets are sold or distributed, you can repay the loan. Please note, not all lenders do this and it will not be suitable for all situations, so professional advise should be taken.
Find out Your Options
How a Bridging Loan Works
A bridging loan is designed to be short-term and fast. You borrow a lump sum secured against a property you already own, with the intention of repaying it once the estate has been finalised.
In this case, the loan isn’t secured against the property in the estate, because legally, you don’t own it yet.
Instead, you might use your own home or another asset you own as security. Once the inherited property is sold or other estate funds become available, you repay the loan and any interest or fees.
Bridging loans are typically used over a 6 to 12 month period, though longer terms can sometimes be arranged. The key part of the agreement is the “exit strategy” which involves a clear plan for how and when the loan will be repaid.
Benefits of Using a Bridging Loan to Pay Inheritance Tax
For the right borrowers, a bridging loan can be a practical and strategic solution to help you through the probate process. Some of the benefits include:
- Speed: Funds can sometimes be arranged within a matter of days, giving you faster breathing space.
- Avoiding penalties: You’ll be able to pay inheritance tax on time and avoid interest charges from HMRC for late payment.
- No forced sales: You won’t be forced into selling assets quickly or under market value just to meet tax deadlines.
If you’re facing a tight deadline and mounting pressure, bridging finance can sometimes ease the process and give you time to make well-informed decisions.
Risks and Things to Consider
While bridging loans are helpful, they’re not without risk. It’s important to understand the responsibilities involved and plan carefully.
You’ll need to:
- Provide a viable asset for security, typically a property you own
- Have a clear and realistic exit strategy to repay the loan
- Understand the full cost, including interest rates, fees, and potential penalties
- Be confident that the estate’s value is sufficient and uncontested and assets will sell quickly when they need to, so you can repay your loan.
At Kerr & Watson, we help you look at the full picture. It’s not just about getting the loan in place, it’s about making sure it’s the right financial step for you. We’ll guide you through your options, consider alternatives, and help you weigh up the risks and benefits.
Alternatives to Bridging Loans
Depending on your circumstances, there may be other ways to pay inheritance tax. These could include:
- Probate loans: These are secured against the estate itself and are typically arranged by the executor. They often carry higher interest rates but don’t require personal collateral.
- Life insurance policies: In some cases, proceeds from a life insurance policy held in trust can be used to pay inheritance tax.
Each option has its own pros and cons, and the best choice depends on your situation. That’s why getting tailored advice from a specialist adviser is important.
What You Can Use as Security for a Bridging Loan
Since you can’t secure a loan against property you’ve inherited but haven’t yet legally received, you’ll need to use a property you already own. This is often:
- Your main residence
- A second home
- A buy-to-let property
The lender will assess the value of the property and any existing mortgage debt. Depending on this, the loan may be offered on a first or second charge basis. A first charge means the lender is first in line to be repaid if the property is sold. A second charge sits behind an existing mortgage.
It’s essential to make sure you’re comfortable with the terms and that the exit plan is realistic.
Why Timing is So Important
You have just six months from the end of the month of death to pay inheritance tax and if you miss that window, and HMRC will usually start charging interest on the outstanding amount.
If you wait until the estate is finalised, you may find yourself in a position where late payment interest adds a significant cost to an already high bill. A bridging loan allows you to meet the deadline and avoid these extra charges of HMRC interest, although you will be accumulating interest on the bridging loan.
It also gives you time to sell property at full market value rather than rushing into a below-market sale just to access funds.
How Kerr & Watson Can Help
At Kerr & Watson, we specialise in helping clients find the right mortgage and protection solutions, tailored to their personal circumstances.
In situations involving bridging finance, our advice can help you make confident and informed decisions.
We work with a wide panel of lenders and can introduce you to bridging loan options that suit your timeline, financial situation, and goals. We’ll also ensure your exit strategy is clear, achievable, and aligned with your broader financial planning.
If we don’t think this is a suitable route for you, we will tell you.
Conclusion
If you’re dealing with an inheritance tax bill and don’t yet have access to the estate, a bridging loan could be a short-term solution. It gives you more time and space you need to pay HMRC, and avoid their penalties.
But like any financial product, it needs to be handled with care and will not be suitable for everyone, so professional advice should always be taken.
Speak to us today for guidance. At Kerr & Watson, you’ll find trusted advice and a friendly team ready to help.
