Can you pay Inheritance Tax in instalments? 

Inheritance Tax (IHT) can be a significant financial burden for the Personal Representatives (PRs) of an estate. A question we’re commonly asked here at Kings Court Trust is “Can you pay Inheritance Tax in instalments?” The good news is that in some cases, paying Inheritance Tax in instalments is an option, and it can be a helpful solution when an estate lacks sufficient cash to cover the bill upfront. Understanding how to pay Inheritance Tax in instalments can make a crucial difference in easing the pressure on families and Executors during a difficult time.  

In the UK, when someone dies, their estate may be subject to IHT if its total value exceeds the current threshold, known as the Nil-Rate Band. As of 2025, this is currently set at £325,000. This can place pressure on Executors or Administrators to settle the tax before the estate can be fully distributed. 

When instalments are allowed 

Paying Inheritance Tax in instalments is generally allowed by HMRC when the tax liability relates to certain types of assets that are not easily sold or accessed quickly. These assets often make up the bulk of an estate’s value, leaving limited cash available to settle the tax bill upfront in one lump sum. This arrangement is designed to ease the financial burden where immediate payment is not feasible.  

How HMRC calculates payments

When paying Inheritance Tax in instalments, HMRC calculates the amount due based on the value of the qualifying assets and spreads the liability over a maximum of ten equal payments. 

It typically works as follows: 

1. The total IHT due on the qualifying assets is divided by ten, creating annual instalments.
2. The first instalment must be paid six months after the end of the month of death. For example, if the deceased died on 4 June 2025, the first instalment must be paid by 31 December 2025. 
3. Subsequent instalments are due on that same date each year until the full amount is paid or the asset is sold. Using the above example, this means that all future payments would be due by 31 December of each year.
4. Interest is charged on the outstanding balance from the due date of the first instalment onward, at the rate set by HMRC (which can vary over time). 
5. If the asset is sold before all the instalments have been paid, the remaining balance becomes immediately due in full. 

It’s also important to note that if the estate includes both qualifying and non-qualifying assets, only the tax attributable to the qualifying assets can be paid in instalments. The remainder must be paid in full before HMRC will issue a Grant of Probate. At Kings Court Trust, we ensure the correct calculations are made and submitted, helping PRs avoid delays or unexpected interest charges.  

What assets can be paid in instalments?

Not all assets qualify for instalment payments, but HMRC does allow paying Inheritance Tax in instalments for certain types of assets that are typically less liquid or difficult to sell quickly. The following assets usually qualify: 

• Land and property - This includes the deceased’s main residence or any other real estate in the estate.
• Business assets - Such as interests in a trading business, partnerships, or business property.
• Unlisted shares and securities - Particularly where they give control over a company (more than 50% of the voting rights). 
• Certain farm or woodland property - If they qualify for Agricultural or Woodland relief and still attract some IHT. 

These assets are considered eligible because selling them quickly may not be possible or could result in a significant financial loss.  

However, cash, listed investments, or easily releasable assets generally cannot be paid in instalments and must be settled in full before a Grant of Probate is issued. We help PRs whose assets qualify, calculate the tax due on each asset, and set up the appropriate instalment plans with HMRC.  

Interest and penalties

When paying Inheritance Tax in instalments, it’s important to understand that HMRC charges interest on the unpaid portion of the tax from the due date of the first instalment onward, even if you’re following the instalment plan correctly. 

Here’s what you need to know: 

• Interest begins accruing six months after the end of the month in which the person died, when the first instalment is due.
• HMRC’s interest rate can change periodically, so it’s important to check the current rate or speak with a professional to confirm up-to-date figures.
• If the estate sells the qualifying asset before the ten-year instalment period ends, any remaining balance must be paid in full, along with any accrued interest.
• Failure to make payments on time can result in late payment penalties in addition to the interest already being charged.

How to apply for an instalment plan

If you’re wondering how to apply for an instalment plan, the process begins during the initial stages of estate administration, specifically when completing the Inheritance Tax forms for HMRC.  

Here’s a step-by-step overview: 

1. Complete form IHT400: This is the main form used to report the estate’s value and calculate the IHT due. On this form, you must indicate that you wish to pay part of the tax in instalments.
2. Submit supplementary schedule IHT400 Schedule 1 (IHT4001): This schedule deals specifically with paying IHT in instalments and how much tax is attributable to each asset.
3. Calculate the first payment: You must pay the full IHT due on non-qualifying assets and at least the first instalment for any qualifying assets before HMRC will issue a Grant of Probate (or Letters of Administration).
4. Set up ongoing payments: After the first payment, remaining instalments are due annually on the same date with interest applied. 
5. Communicate with HMRC: HMRC may request additional information or clarification, so it’s important to respond promptly and accurately to avoid delays. 

Alternatives to instalments 

While paying Inheritance Tax in instalments can be helpful in certain situations, it’s not always the best or most practical option, especially when interest charges build up over time. Fortunately, there are several alternative ways to settle the Inheritance Tax liability if paying in full up front isn’t feasible.  

Using estate funds 

If the estate includes liquid assets like bank accounts, savings, or investments, these can be used to settle the tax bill before applying for probate. In some cases, banks will release funds directly to HMRC before the Grant is issued, under the Direct Payment Scheme. 

Short-term loans or bridging finance 

Some PRs choose to take out a short-term loan or probate loan to cover the Inheritance Tax upfront. These loans are repaid once the estate’s assets are sold or accessed. This option can avoid the long-term cost of interest on HMRC instalments. Kings Court Trust has strong relationships with probate loan providers if this option is more suitable for your situation. 

Selling estate assets 

If the estate includes property or valuable items (such as art, jewellery, or vehicles), selling them can generate the necessary funds. However, this may take time and potentially affect the value realised, particularly if done under pressure. 

Life insurance 

If the deceased had a life insurance policy written in Trust, the proceeds are usually paid outside the estate and can be used to pay the Inheritance Tax bill. This proactive approach is best set up in advance as part of estate planning.