Payment Difficulties and Options
HMRC support options when you cannot pay inheritance tax immediately
If you're struggling to pay IHT — options at a glance
- • Pay from the deceased's accounts using the Direct Payment Scheme (form IHT423).
- • Pay by instalments (up to 10 years) for assets that take time to sell (you must elect on IHT400; interest usually applies; if the asset is sold, the balance becomes due immediately).
- • Make payments on account to reduce interest while values are being finalised.
- • Apply for a grant on credit if funds are tied up and you cannot release them in time (HMRC may secure the liability against property).
- • Sell/finance assets if needed (note: PRs should avoid unnecessary interest where possible).
Paying from the deceased's accounts (IHT423)
You can ask banks, building societies, investment managers or NS&I to pay IHT directly to HMRC from the deceased's accounts using form IHT423.
- • Get your IHT reference first.
- • Send a separate IHT423 for each account/provider.
- • Keep copies of statements and the provider's confirmation for your file.
Paying by instalments (IHT400 election required)
For assets that may take time to sell (e.g., a home, business property, or unquoted shares), you can elect on IHT400 to pay in 10 equal annual instalments.
- • HMRC usually charges daily simple interest on the unpaid balance.
- • If you sell or transfer the asset, the remaining tax generally becomes payable immediately.
- • Keep a calendar of due dates; missing an instalment increases interest.
- • Land and buildings
- • Unquoted shares and securities
- • Business assets qualifying for relief
- • Agricultural property
- • Certain government securities
- • Up to 10 equal annual instalments
- • First payment due 6 months after death
- • Interest charged on outstanding balance
- • Can pay off early without penalty
- • Automatic if asset qualifies
Reduce interest with payments on account
If you do not yet know the final liability, you can make payments on account. HMRC will credit these amounts against the final bill. This is a practical way to limit interest while you wait for valuations or sales.
Grant on credit (when you cannot release funds)
If you're unable to release funds from the estate to pay IHT, HMRC can, in some cases, postpone payment and allow you to obtain the grant (probate/confirmation) on credit.
- • From 1 April 2024, PRs are not required to seek commercial loans before applying.
- • HMRC may enter a notice/charge against land or buildings in the estate until payment is made.
- • Use this where assets are illiquid but sale or release is expected in due course.
Deadlines & interest
- • IHT is due by the end of the sixth month after the month of death (trust 10-year charges: by 6 months after each 10-year anniversary).
- • Interest is daily simple (non-compounding) and rates change periodically.
- • Act early: payments on account and IHT423 can reduce the amount of interest you'll pay.
Interest Rates and Charges
Interest is charged on unpaid inheritance tax from the due date. The rates are set by HMRC and reviewed regularly. Understanding these charges is crucial for financial planning.
*Rates subject to change. Check HMRC website for current rates.
Payment in Kind Schemes
For estates containing items of national importance, HMRC may accept assets instead of cash payment. This scheme helps preserve important cultural heritage while settling tax liabilities.
Qualifying Items:
- • Works of art, antiques, and manuscripts
- • Historic buildings and their contents
- • Areas of outstanding natural beauty
- • Items of national, scientific, or historic interest
Process:
- • Independent valuation required
- • Expert panel assessment
- • Items allocated to museums or galleries
- • 25% douceur (bonus) may apply
Time to Pay Arrangements
If you're experiencing temporary financial difficulties, HMRC may agree to a time to pay arrangement. This is a formal agreement that allows you to spread payments over an agreed period.
- • Before the payment deadline if possible
- • When facing genuine financial hardship
- • If asset sales are delayed
- • During probate complications
- • When awaiting insurance payouts
- • Detailed financial statement
- • Proposed payment schedule
- • Evidence of circumstances
- • Asset disposal plans
- • Professional representation advised
Practical Considerations
- • Interest continues to accrue on unpaid amounts
- • Penalties may apply for late payment without arrangement
- • HMRC may refuse arrangements if they consider them unreasonable
- • Breach of arrangement terms can lead to immediate payment demands
- • Professional advice strongly recommended
What to do this week
- Get/confirm your IHT reference and check the due date.
- Identify accounts eligible for IHT423 and submit forms (one per account).
- Decide if any assets qualify for instalments and tick the election on IHT400.
- Consider a payment on account to cap interest exposure.
- If funds are still locked, prepare a grant on credit request (asset list, expected sale timings, any charges HMRC may take).
- Keep a timeline and all correspondence with providers and HMRC.
Strategic Planning
The best approach to payment difficulties is prevention through proper estate planning. However, when difficulties arise, early communication with HMRC and professional advisors is essential.
Before Death:
- • Maintain adequate liquid assets
- • Consider life insurance policies
- • Plan asset disposal strategies
- • Review investment portfolio liquidity
After Death:
- • Assess cash flow requirements early
- • Contact HMRC promptly if difficulties arise
- • Obtain professional valuation advice
- • Consider all available options
Getting Professional Help
Payment difficulties can be complex, and the consequences of getting it wrong can be severe. Professional advice from tax specialists, solicitors, or accountants experienced in inheritance tax matters is strongly recommended when facing payment challenges.