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Bridging loan used to pay estate tax

Bridging loans are short-term flexible loans that can be used for many purposes. As an example of this, bridging finance was recently used to help a son pay the inheritance tax on his mother’s estate.

According to a July 2017, the estate was liable to inheritance tax and included three retail units with rented accommodation above them. The son was the sole beneficiary of his mother’s estate. There was some cash available in the estate, but not enough to pay the inheritance tax bill. The accommodation was fully let and there was a plan to sell the units which would more than cover the tax bill, but no sale could take place until probate was granted.

A bridging loan was raised for £240,000 to pay the tax bill. The borrower wanted to use the semi-commercial property as security, but this was not possible until probate was granted. The lender came up with a solution by using the mortgage free family home as security. The £240,000 loan represented a 48% loan-to-value and was available for nine months.

The exit strategy for the bridging loan was to repay it after probate was granted and the rented property sold. The risk for the borrower was if another beneficiary of the estate came forward to claim probate, but this did not happen.

A bridging loan broker that thinks creatively can arrange bridging finance for unusual situations such as this. Though most bridging finance is property related, this case highlights that there are many other reasons to use bridging finance.