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Using bridging finance to pay large tax bills

Posted: December 10, 2017

Bridging loans are flexible short-term loans that can be used for many purposes, and these are not confined to property-related deals. What many people do not realise is that a bridging loan can also be used to pay a tax bill.

After a person dies, their executors may need to pay inheritance tax. This needs to be paid within six months after the death. Many estates do not have enough money to pay the tax if assets are tied up in property, and if the property cannot be sold within the six-month period, the tax is still due. Some executors are therefore tempted to sell property quickly at a below market price in order to meet the tax payment deadline. Alternatively, a bridging loan can be used to pay the tax, then repaid when the property is sold at the market price.

Sometimes, an individual or company has a large tax bill and decides to sell property to release funds to pay the tax. This is fine as long as the property sells before the tax payment deadline. If the sale is delayed, or the sale falls through, then a bridging loan can be secured using the property and the tax paid. After the property sells, the loan can be repaid.

It can take a few weeks for a bridging loan to be arranged. If this will mean missing the payment deadline, lenders and bridging finance brokers can work together to complete the process in a matter of days.