Sonia’s Eastenders Inheritance Tax Shock Highlights The Difficulties Surrounding Inheritances – But It Doesn’t Take Martin Lewis To Help Solve Her Money Worries
Eastenders fans have been left surprised by recent episodes of the show which have seen Albert Street regular Sonia Brown (played by Natalie Cassidy) hit with an eye-watering £196,000 inheritance tax bill – something which has left the character in a difficult financial situation as she struggles to find a way to pay the tax man and claim her inheritance. Famed Money Saving Expert Martine Lewis has even been name-dropped as Sonia desperately searches for a way to foot the bill, with the character considering selling her home and moving into a 1-bedroom flat to free up the funds needed. But while this storyline is highlighting some very real issues faced by people as they try to claim their inheritance, the reality is that it shouldn’t take that patented Martin Lewis magic to solve Sonia’s money worries.
Firstly, it’s important to note that a lot about Sonia’s storyline is very much grounded in reality. While some viewers have scoffed at the idea that Dot Cotton’s 2-bedroom house could incur such a steep inheritance tax bill, it’s really not a difficult-to-imagine situation. An inheritance tax bill of £196,000 would make Dot’s home worth just shy of £1millon. This is because inheritance tax (IHT) is paid at a rate of 40% on anything over £325,000 – with an additional tax-free allowance of £175,000 for individuals who are direct family members inheriting the main family residence. As Sonia is Dot’s granddaughter, she has a £500,000 tax-free allowance. For her to still have a £196,000 IHT bill means that Dot’s house must be worth considerably more than this. Indeed, if £196,000 is 40% of the additional value, then that gives Dot’s house a value of £990,000.
While that may seem like a bit of a stretch for such a modest property it’s certainly not impossible, with the average price for a terraced house in London coming in at more than £570,000 as of March 2022. According to Right Move, the average terraced property in Bromley-by-Bow (the closest thing to a real-world version of Walford, the fictional borough where Eastenders is set) comes in at nearly £680,000 – well shy of the million pounds suggested by Eastenders but still enough to cause potential problems for Sonia. Indeed, even if Dot’s house was worth a more ‘average’ £680,000, Sonia would still be looking at an IHT bill of around £72,000 – a much smaller amount to be sure but not exactly pocket money!
What’s also accurate about the storyline, and something that is not well-known, is that inheritance tax must be paid, or an arrangement to settle the liability, by the executor of an estate (in this case, Sonia) before probate can be granted and the process of freeing up the inheritance can begin. This means that Sonia can’t simply wait to inherit Dot’s house, sell it, and pay her IHT bill out of the profits. She has to find a way to settle the £196,000 up front before getting her inheritance – even though if she was able to get her hands on Dot’s house beforehand it would certainly make paying her tax bill easier. So what options are available to Sonia to help her settle her hefty IHT bill?
The options open to Sonia include:
Taking out some form of personal finance. This would be an unlikely solution in this scenario as Sonia likely has limited personal assets to secure any personal lending against. Assuming this were possible, she would then incur sizable monthly repayments, which would likely make this a costly and, ultimately, unfeasible option.
Applying to HMRC for payment in installments. This would mean Sonia could pay the first installment of 10% of the IHT owed (about £20,000) and then would need to pay up to nine further installments each year, along with any interest. This may work if Sonia was planning to rent the house out to generate income, but raising the annual installment of around £20,000 would be a challenge if not.
Applying for an IHT Loan. If Sonia wishes to live in the property going forward, then she could apply for an IHT Loan from a probate lending firm. This means Sonia could clear the inheritance tax liability, but would need to repay the loan. This could be done via mortgaging the property. This should be affordable to Sonia and see her with around a £1,000 mortgage repayment each month. Given that’s significantly less than the average cost of property rental in Bromley-by-Bow (around £1,300 per month) this looks like a good option for her situation. She may be able to look at taking in a lodger to help cover the cost of the mortgage repayments.
Finally, Sonia could apply for Grant on Credit from HMRC. This is a solution of last resort as to get Grant on Credit you must provide evidence that you have no other way of financing the inheritance Tax owed. HMRC ask for documents to prove failed attempts to secure funding before they will consider this option, so other methods of funding must have been tried first. This would also still mean the IHT liability needs to be repaid, so Sonia would likely still need to mortgage the property if she wants to live in it.
While it’s easy to see how someone like Sonia could be faced with an unexpected IHT bill that that looks intimidatingly large on paper, it’s important to remember that the situation isn’t quite as dire as it first appears and that there readily available options out there to make unlocking an inheritance a much more straightforward process. Crucially options like IHT loans remove the need for such drastic measures as selling a family home to pay the bill, meaning that Sonia can stay put until probate is resolved and she inherits Dot’s million-pound home!