Incompetent civil servants working from home are fuelling inheritance tax pain, warns Rees-Mogg

Grieving families are being stung by inheritance tax penalties because of probate delays caused by incompetent civil servants working from home, Jacob Rees-Mogg has warned.

The former business secretary said it was wrong that families were penalised for being unable to pay tax bills on time because they were forced to wait months for probate, the vital legal document required so the executor can distribute their late loved one’s estate.

It comes as The Telegraph and more than 50 Tory MPs are calling on the Prime Minister and Chancellor to axe inheritance tax ahead of the next election.

If inheritance tax is due on an estate, then it must be paid within six months or interest will be added to the bill at 7pc. Often probate must be obtained before the tax can be paid.

The Telegraph has heard from readers left waiting nearly twelve months for a grant of probate. One has amassed an interest bill of £17,000 while waiting 10 months.

Yet HM Revenue and Customs refuses to waive the interest on late payments of IHT, even if the delay is not the taxpayer’s fault.

Mr Rees-Mogg, who is among those in favour of abolishing IHT, said: “It is clearly wrong for the state to impose penalties on taxpayers when the reason for the delays is the incompetence of a government department.

“There are very high levels of working from home and this has created the backlog. The civil servants need to get back into the office to deal with it.

“The Government should be paying compensation for these delays rather than the HMRC penalising people who are unable to pay on time.”

Where the estate is mainly tied up in cash and investments, most banks and financial institutions will release funds early, before probate is granted, in order to pay the inheritance tax.

However, if the deceased’s main asset is property, then probate is required in order to sell the house and release the funds. This rule has created huge problems for families who are forced to cover the bill out of their own pocket.

Families who cannot afford to do this are left with only two options – take out an expensive short-term loan or pay the bill in instalments, plus interest.

Fiona Underhill, 63, from Essex, had to pay £17,000 in interest alone on the tax bill charged on her father’s estate, after a ten month delay at the probate registry caused her to miss the deadline for payment.

The interest rate charged on overdue tax has rocketed over the past year, in line with the Bank of England’s rate rises. This week HMRC increased its rate yet again to 7pc – double what it was this time last year – meaning families caught in the trap face extraordinarily high bills.

The longer the wait, the more the interest will roll up. Someone owing £100,000 who had started paying interest at the start of this year would by now owe more than £2,600 in interest, according to HMRC’s online calculator.

The waiting time for a grant of probate jumped to nearly 11 weeks in the first quarter of 2023, up from fewer than nine weeks in the same period in 2022. Probate registries have asked those waiting for a grant not to contact them until 16 weeks have passed, meaning families are left in the dark about their application for up to four months.

In some cases, families face delays of up to a year where their application is “stopped” because of a dispute or an error, solicitors have said.

In Ms Underhill’s case, her probate application for her father’s fortune was delayed for three months after another claim was made to the estate.

But after the matter was resolved, she was pushed to the back of the queue and had to wait another seven months for it to be granted.

She told The Telegraph: “You feel completely at the mercy of this crazy system.”

Joe Cobb of the law firm JMW said the situation was now worse than he can ever recall, owing to the huge backlog at the probate registries.

HM Courts and Tribunals Service continues to blame its slow processing times on a spike in probate applications resulting from the higher death toll in the pandemic.

Nockolds, another law firm, warned the delays could worsen, after it found in a Freedom of Information Request submitted to the Ministry of Justice that probate registries have seriously cut back on the number of experienced staff members.

Sarah Lockyer of Nockolds said around half of the cases the law firm has worked on are still unresolved, a year after the death.

She added: “We have seen many more cases of this kind over the past year in which bereaved families are at their wits’ end and facing financial difficulties because of these delays. The uncertainty that this period of estate administration creates cannot be underestimated.”

Christine Hopkins, of Lincolnshire, who has been waiting 10 weeks for a grant of probate so she can sell her mother’s house, said that in the same street there are four houses for sale, at least two of which are waiting for probate.

While the executor waits, they must continue to pay for energy bills and home insurance. They also face the risk that the property could plummet in value by the time it is sold.

Ms Lockyer said: “Property sales are falling through as buyers get tired of waiting. In a falling property market this can mean that when the house is finally sold it is for considerably less than would otherwise have been the case.”

Bereaved families are also suffering investment losses because of the delays. If the deceased’s stocks and shares were sold at a loss after their death, then the executor can claim IHT share loss relief. However, the claim must be made within a year of the date of death.

Mr Cobb said: “Unfortunately, due to the ongoing delays at the Probate Registry this can mean that the Grant is not issued within a year of death and so the shares cannot be sold in the requisite period, therefore the relief cannot be claimed.”

The Association of Tax Technicians, an accountancy trade body, has urged the Government to extend the 12-month window to between 18 months and two years, but so far the Government has resisted these calls.

Recognising the scale of the problem, HMCTS has increased the number of administrative officers at probate registries – responsible for processing grants – by over 100 in the past year.

But lawyers warned that throwing staff at the problem might not necessarily tackle the extreme delays, particularly if they are less experienced.

Ms Lockyer said: “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 processed quickly without due care and attention, this may mean that grants are issued incorrectly. It’s important that the balance is right between speed and accuracy.”

A spokesman for HMRC said: “We are legally obliged to charge interest on any unpaid tax, but people can choose to make an early payment towards a future IHT bill to help mitigate this.

“Charging interest ensures those paying late don’t get an unfair financial advantage over those who pay on time.”

A spokesman for HMCTS said: “Since December last year, we have recruited and trained 100 new members of staff which has seen a rapid increase in the number of grants processed – with March seeing the highest number approved since January 2020.

“Over 90pc of applications are done digitally and processed within seven weeks on average, but we know delays are frustrating and looking at how we can bring down waiting times further.”

How has inheritance tax impacted you? Do you have a story for our campaign? Email money@telegraph.co.uk