Dealing with the financial affairs of a deceased loved one can be challenging, particularly when an estate contains property or other assets that cannot immediately be accessed or sold.
Executors, administrators and beneficiaries may find themselves waiting for probate or the administration of an estate to progress while important costs still need to be met. In some circumstances, specialist finance can help bridge this funding gap.
Two terms you may come across are inheritance loans and probate bridging loans. Although they can both provide access to funds before an estate has been fully administered, they are not necessarily the same type of finance.
Inheritance funding is generally associated with allowing a beneficiary to access some of the value of an expected inheritance, whereas probate bridging finance is typically short-term lending secured against suitable property and used to address a temporary funding requirement connected with an estate.
Understanding the difference can help executors, administrators and beneficiaries determine which form of finance may be appropriate for their circumstances.
Key Takeaways
- Inheritance loans or advances may allow beneficiaries to access some of the value of an expected inheritance before the estate has been fully administered.
- Probate bridging loans are short-term secured loans that can help address funding requirements while an estate is going through probate or administration.
- Probate bridging finance will typically require suitable property to be offered as security.
- Depending on the lender and circumstances, probate finance may be available to executors, administrators or beneficiaries.
- Probate bridging finance may be used for purposes including paying an Inheritance Tax liability, refinancing property-related debt, maintaining an inherited property or preparing it for sale.
- The amount available will usually depend on factors such as the property value, loan-to-value ratio, circumstances of the estate and proposed repayment strategy.
- Rates, fees, security requirements and eligibility vary between lenders, so the overall cost of borrowing should always be considered carefully.
- As bridging finance is secured lending, property may be at risk if the loan cannot be repaid according to its agreed terms.
What Are Inheritance Loans?
An inheritance loan is a term commonly used for funding that allows a beneficiary to access money based on an inheritance they expect to receive from an estate.
You may also see terms such as inheritance advance, although products described in this way can be structured differently by different providers.
The purpose is generally to give a beneficiary access to funds before the estate has been fully administered and their inheritance has been distributed.
For example, a beneficiary may be entitled to receive money from an estate but could otherwise have to wait until property has been sold, debts and taxes have been settled and the administration process has been completed.
Depending on the particular product, a finance provider may agree to advance funds based on the beneficiary’s anticipated entitlement.
It is important to check the exact structure of the arrangement. Some inheritance finance may operate as lending, while other forms of inheritance funding may use a different contractual structure. Repayment arrangements, interest and fees can therefore vary significantly between providers.
How Do Inheritance Loans Work?
The exact process varies, but inheritance finance may involve the following:
- Assessment of the expected inheritance: The provider will usually assess the estate and the amount the beneficiary is expected to receive.
- Legal and probate checks: The provider may review the will, probate position, estate assets, liabilities and any potential disputes.
- Funding before distribution: If approved, the beneficiary receives an agreed amount before their inheritance would otherwise become available.
- Repayment from the eventual inheritance: Depending on the agreement, repayment may be made when the beneficiary receives their distribution from the estate.
- Interest and fees: Charges will depend on the provider and structure of the finance.
Because inheritance funding arrangements differ considerably, beneficiaries should understand the total cost, repayment terms and potential effect on their eventual inheritance before proceeding.
What Are Probate Bridging Loans?
A probate bridging loan is a form of short-term finance typically secured against suitable property.
It can be used where an executor, administrator or beneficiary faces a temporary funding requirement connected with an estate but the money needed to resolve it is not yet readily available.
One of the most common difficulties during probate is that an estate may be valuable on paper but have limited accessible cash.
For example, much of the estate’s value could be tied up in residential or commercial property. Selling that property can take time, while other liabilities may need to be dealt with sooner.
Probate bridging finance can potentially provide short-term liquidity while those assets are being administered, refinanced or prepared for sale.
Why Might Finance Be Needed Before Probate?
Inheritance Tax can create a particular cash-flow challenge for some estates.
In England and Wales, an estate must be valued before probate is applied for. Where Inheritance Tax is due, the personal representatives will normally need to start paying it before probate is granted. GOV.UK also states that Inheritance Tax is normally payable by the end of the sixth month after the person dies, after which interest may be charged.
This can create a funding gap where a significant proportion of an estate’s value is held in property rather than cash.
However, borrowing is not the only possible solution. Depending on the estate, funds held with banks, building societies, NS&I or certain investment providers may sometimes be paid directly to HMRC. Certain assets can also qualify for payment of Inheritance Tax by instalments, and HMRC provides a grant-on-credit procedure in some circumstances where funds cannot otherwise be accessed before probate.
Professional probate and tax advice should therefore be considered before deciding whether borrowing is appropriate.
How Do Probate Bridging Loans Work?
While every case is different, probate bridging finance will generally involve the following considerations.
1. Property Is Offered as Security
Bridging loans are secured finance.
A lender will typically take a legal charge over suitable residential, commercial, semi-commercial or other acceptable property.
The property and ownership structure must satisfy the lender’s requirements before funds can be released.
2. The Funding Requirement Is Assessed
The lender will consider why the money is needed.
Potential uses could include:
- paying an Inheritance Tax liability
- settling or refinancing an existing mortgage or charge
- covering necessary property-related costs
- carrying out essential repairs or refurbishment
- preparing a property for sale
- resolving a temporary estate-related cash-flow requirement
The permitted use of funds will depend on the lender and circumstances.
3. The Property Is Valued
The lender will usually arrange or review a valuation of the property being offered as security.
Rather than being based simply on the size of an expected inheritance, the amount available under a probate bridging loan will generally depend on factors including:
- the value of the property
- the requested loan amount
- the loan-to-value ratio
- the type and condition of the property
- the borrower’s circumstances
- the proposed exit strategy
4. Legal Work Is Completed
As bridging finance is normally secured against property, legal work will usually be required before completion.
Probate cases can involve additional legal considerations because ownership and authority to deal with estate property must be established.
The exact requirements will depend on the stage of the estate administration and the circumstances of the transaction.
5. The Loan Is Repaid Through an Agreed Exit Strategy
Bridging loans are designed as short-term finance rather than permanent borrowing.
A credible exit strategy is therefore important.
Depending on the case, repayment could potentially come from:
- the sale of the inherited property
- the sale of another suitable asset
- refinancing onto longer-term finance
- the release of estate funds once administration progresses
- another clearly identified source of funds
The lender will usually want to understand the proposed exit before agreeing to the loan.
What Are the Benefits of Probate Bridging Loans?
Where appropriate, probate bridging finance can offer several potential advantages.
Access to Short-Term Liquidity
An estate may contain valuable property but insufficient readily available cash.
Bridging finance can potentially convert some of that property value into temporary liquidity without requiring an immediate sale.
Help With Inheritance Tax
Where Inheritance Tax needs to be paid before the necessary estate assets can readily be accessed, probate finance may provide one potential way to address the funding gap.
It should, however, be considered alongside other options available through the estate or HMRC.
Avoiding an Unnecessarily Rushed Property Sale
If property needs work or market conditions are unsuitable for an immediate sale, access to short-term finance may allow more time to prepare the property for disposal rather than accepting an unnecessarily rushed transaction.
Funding Necessary Property Work
An inherited property may require repairs, maintenance or refurbishment before it can be sold or refinanced.
Subject to the lender’s criteria, bridging finance may provide funds for appropriate work.
Flexible Short-Term Funding
Specialist bridging lenders assess applications individually and may be able to consider cases that do not fit the criteria of mainstream mortgage providers.
The amount available will depend on factors including the property offered as security, the required loan-to-value ratio and the proposed exit strategy.
Inheritance Loans vs. Probate Bridging Loans: What’s the Difference?
Although the two forms of finance can address similar timing problems, their underlying purpose and structure can be different.
| Feature | Inheritance Loan / Advance | Probate Bridging Loan |
|---|---|---|
| Typical purpose | Accessing part of an expected inheritance early | Addressing a temporary funding requirement connected with an estate or inherited property |
| Typical applicant | Beneficiary | May include an executor, administrator or beneficiary, depending on the lender and circumstances |
| Basis of funding | Expected entitlement to an inheritance | Primarily the value of suitable property offered as security, alongside the borrower’s circumstances and exit strategy |
| Security | Depends on the provider and product structure | Usually secured by a legal charge over property |
| Repayment | Often linked to receipt of the beneficiary’s inheritance | Usually repaid through property sale, refinance, release of estate funds or another agreed exit |
| Loan term | Varies by provider | Generally short-term |
| Common uses | Personal access to expected inheritance | Tax liabilities, refinancing, property costs, repairs, sale preparation or other short-term estate funding requirements |
| Main consideration | Cost and impact on the eventual inheritance | Cost, property security and ability to execute the repayment strategy |
When Might You Consider an Inheritance Loan?
Inheritance finance may be worth exploring where:
- you are a beneficiary expecting to receive an inheritance;
- you need access to some of those funds before the estate can make its final distribution;
- the value of your expected inheritance can be established with reasonable certainty; and
- you understand the fees, repayment structure and effect that accessing funds early could have on the inheritance you ultimately receive.
Where an estate is disputed, insolvent, particularly complex or difficult to value, obtaining inheritance finance may be more difficult.
When Might You Consider a Probate Bridging Loan?
Probate bridging finance may be worth considering where:
- there is suitable property available as security;
- an estate has a short-term funding requirement;
- Inheritance Tax or another liability needs to be addressed;
- an existing property loan needs refinancing;
- an inherited property requires essential work before sale;
- significant estate value is tied up in property;
- an immediate property sale would not be appropriate; and
- there is a realistic and clearly defined way of repaying the loan.
The availability of a loan will depend on the lender’s criteria, the legal position of the estate, the property being offered as security and the proposed exit strategy.
What Are the Risks and Costs?
Both inheritance funding and probate bridging finance can provide useful access to capital, but neither should be entered into without considering the costs and risks.
Interest
Interest rates will vary between providers.
With bridging finance, interest may sometimes be serviced monthly, deducted in advance or retained and repaid when the loan is redeemed, depending on the particular product.
Where interest is retained or rolled up rather than paid monthly, the balance due at redemption will be higher than the initial net amount received.
Arrangement and Other Fees
Depending on the product, costs could include:
- lender arrangement fees
- valuation fees
- legal fees
- broker fees, where applicable
- administration fees
- exit fees, where applicable
Applicants should compare the total cost of borrowing rather than looking only at the headline interest rate.
Property Is at Risk
Probate bridging finance is normally secured against property.
If the loan cannot be repaid according to the agreed terms, the secured property could ultimately be at risk.
This makes a realistic exit strategy particularly important.
Probate Delays
Estate administration does not always proceed according to the expected timetable.
GOV.UK states that probate is usually issued within 12 weeks of submitting an application, but it can take longer where additional information is required. Complex estates, disputes or tax issues can extend the overall administration period further.
If a bridging loan remains outstanding for longer than expected, additional interest and other costs may arise.
Legal Complexity
Probate lending can involve several parties and legal issues, including executors, administrators, beneficiaries, solicitors, lenders and HMRC.
Borrowers should obtain appropriate legal, tax or financial advice where necessary before committing to finance.
Are There Alternatives to Probate Bridging Finance?
Before taking out a bridging loan, it is sensible to consider whether another source of funding may be available.
Depending on the circumstances, alternatives might include:
- cash already held within the estate
- direct payment to HMRC from qualifying bank or building society accounts
- release of qualifying investment funds directly to HMRC
- paying certain Inheritance Tax liabilities by instalments
- an HMRC grant on credit in eligible cases
- funds provided temporarily by an executor or beneficiary
- conventional refinancing where available
- delaying non-essential expenditure until estate funds become accessible
HMRC specifically provides mechanisms that may allow certain estate assets to be used towards Inheritance Tax before probate, so these should be investigated before assuming external borrowing is required.
Is a Probate Bridging Loan Right for You?
There is no single financing solution that suits every estate.
A probate bridging loan can potentially be useful where a valuable property asset exists but there is a temporary shortage of accessible cash. However, the cost of borrowing must be balanced against the benefit the finance is expected to provide.
Before proceeding, consider:
- exactly how much funding is required;
- what the money will be used for;
- which property will provide security;
- the total interest and fees;
- how long the finance may be required;
- what will happen if probate or a property sale takes longer than expected; and
- how the loan will ultimately be repaid.
Specialist advice can be particularly valuable where the estate involves substantial Inheritance Tax, disputed assets, multiple beneficiaries or unusual ownership arrangements.
Speak to Rapid Bridging About Probate Finance
If an estate contains property but accessible funds are temporarily unavailable, Rapid Bridging may be able to help with a probate bridging loan.
We consider individual circumstances and can discuss the property available as security, the amount required and the proposed repayment strategy to determine whether bridging finance could provide an appropriate solution.
Whether funds are required in connection with an Inheritance Tax liability, refinancing, property costs or preparing an inherited property for sale, our team can explain the available options and the potential costs involved.
Find out more about probate bridging loans or speak to our team to discuss your circumstances.
Conclusion
Inheritance loans and probate bridging loans can both provide access to funding before an estate has been fully administered, but they operate in different ways.
Inheritance finance is generally focused on giving a beneficiary early access to some of the value they expect to inherit.
Probate bridging finance, by contrast, is typically short-term lending secured against property and may be used to resolve an estate-related funding requirement while probate or administration progresses.
Neither option should automatically be considered the best solution. The right approach will depend on the estate, available assets, costs, legal circumstances, timescale and proposed method of repayment.
If bridging finance is being considered, compare the overall cost carefully and make sure there is a realistic exit strategy before proceeding.
For more information on the potential cost of short-term property finance, see our guide to bridging loan rates.
Important Information
This article is intended for general information only and does not constitute legal, tax or financial advice. Individual circumstances vary, and probate, succession and tax procedures differ between England and Wales, Scotland and Northern Ireland.
Where appropriate, you should seek advice from a qualified probate solicitor, tax adviser or suitably authorised financial professional before entering into a finance agreement.
Bridging finance is secured against property. Your property may be at risk if you do not keep up repayments or otherwise comply with the terms of the loan.