When is Inheritance Tax due?
A question most people dealing with estate administration dread is ‘when is Inheritance Tax (IHT) due?’ As we have all heard about IHT in a negative light and on the news following the Autumn Statement, especially. In this article, we will cover when it is due and what happens if you don’t pay the correct amount.
When is Inheritance Tax (IHT) due?
A Grant of Probate will not be given until confirmation is received from HMRC that all due Inheritance Tax has been paid. Since the Grant of Probate is the key to unlocking the estate for distribution to any beneficiaries, this means, in practical terms, that HMRC expects you to pay IHT before you do anything else. IHT should be paid within six months of death. If you do not pay it within this time, HMRC will start to charge interest on the overdue sum.
This may be a reason to seek professional advice and support in calculating the estate's value and completing HMRC’s IHT forms. Also, any delay in paying will delay the distribution of the estate to other beneficiaries, which can lead to friction and conflict.
If there is a property in the estate, then the IHT liability will be divided proportionately between the value of the property and all other assets. The tax due on the property can be paid in ten annual instalments if insufficient funds are available to settle the whole liability. In this scenario, the Executors can apply for the Grant of Probate and release the funds needed to pay any outstanding IHT. Please note that interest will still continue to accumulate on any unpaid tax; therefore, it’s better to pay all of the tax due if possible.
Interest rates on IHT payments
Between 2008 and February 2022, the interest rate due on IHT was anywhere between 0 – 3%. However, over the past couple of years, interest rates have increased in correspondence with a rise in HMRC rates. In August 2023, the interest rate on unpaid IHT went up to 7.75%, which was the highest it has been since 1991. However, the interest rate has increased even more from 6 April 2025 to 8.5%, following a legislative change that raises the tariff to the bank base rate plus 4%.
In practice, this can have a significant effect on the amount owed.
What happens if I don’t pay or don’t pay the right amount?
As the Executor or Administrator, you are responsible for accurately calculating and declaring any taxes payable from the estate. This is a legal responsibility and not to be taken lightly. Failure to discharge these duties accurately may leave you personally liable for any fines and interest due. This especially applies if you have distributed the value of the estate to other beneficiaries; they are under no obligation to provide funds to pay towards any miscalculations.