When the deceased person has sufficient funds to their credit, participating institutions will be ready to transfer funds direct to the Inland Revenue to pay the inheritance tax due Dawn Primarolo, HM Treasury

Under the new agreement, banks will release money directly from the deceased estates before probate.

Under existing rules, tax at 40% becomes due on estates above �250,000 six months after the end of the month that the death occurs, but a will may not have been finalised and beneficiaries can end up taking out costly loans to pay the tax bill.

The new rule also means the government can collect its revenue more quickly - and easily.

Increasing revenue

No money can be released before probate - the process whereby a will is legally validated.

But the new system, which could be in place within a few months, would effectively bypass the law.

Inheritance tax is paid on about 25,000 estates every year, and brings in about �2.5bn a year - about 0.5% of total tax revenue.

While it is only a small revenue for the government, this could increase in the future.

High house prices have led to a massive jump in the number of families who face giant bills for inheritance tax when the homeowner dies.

Independent research commissioned by BBC Radio Five Live last year showed that as recently as five years ago, only one in forty households were liable for inheritance tax because of the value of their property.

Five years from now, that figure will be one in eight.

Government review

The government announced last summer that work was under way to allow inheritance tax to be paid out of an estate before probate was granted.

In a written statement, Paymaster General Dawn Primarolo said: "Broadly, when the deceased person has sufficient funds to their credit, participating institutions will be ready to transfer funds direct to the Inland Revenue to pay the inheritance tax due.

"We are now working with the Association to finalise the detail of the processes concerned, and help their members prepare for the launch.

"The government hope to see the maximum possible take-up of this welcome scheme which will start later this year."