This guide is maintained as a current resource for September 2026 and covers only the laws of England and Wales. Information is for general guidance, not legal advice. Consult a qualified solicitor for advice specific to your situation.
Learn how to plan for inheritance tax payments in England and Wales, including when IHT is due, how executors can pay on time, using early payments, instalments and postponement options, and practical steps to manage liabilities and avoid interest charges.
Planning for Inheritance Tax (IHT) payments is a crucial part of estate administration in England and Wales. When someone dies and their estate is liable for IHT, executors or administrators must calculate the tax, file the correct returns and ensure payment is made on time to HM Revenue & Customs (HMRC). Failure to plan properly can result in significant interest charges, administrative complications and stress for beneficiaries. This comprehensive guide explains how IHT payments work, key deadlines, practical ways to plan for payment, options where cash liquidity is limited, and common questions with clear, practical context.
What Is Inheritance Tax and Who Pays It?
Inheritance Tax is a tax on an estate when a person dies and on certain gifts made shortly before death. In England and Wales, the tax is charged on estates exceeding the nil‑rate band, currently £325,000, at a rate of 40% on the value above that threshold. Additional allowances, such as the residence nil‑rate band for a home left to direct descendants, can increase the tax‑free threshold. Executors or administrators are responsible for preparing the estate accounts and paying IHT before distributing assets to beneficiaries.
Planning for IHT payments involves understanding payment deadlines, methods of payment, and practical strategies to have funds available when they are due.
When Is Inheritance Tax Due?
The general rule is that IHT must be paid within six months of the end of the month in which the death occurred. For example, if the person died in January, the IHT must be paid by 31 July of the same year. Interest starts to accrue on any unpaid tax from the day after this six‑month deadline.
Executors should obtain the estate's IHT payment reference number before attempting payment, which typically takes a few weeks after HMRC receives the appropriate tax return form (for example, IHT400). Without this reference number, payments cannot be processed.
Preparing for the IHT Payment
Accurate Valuation and Tax Return Preparation
Before payment can be made, executors generally must:
- Value the estate assets including property, investments, savings and personal possessions. Professional valuations (for example, for property) may be required.
- Complete the relevant tax return, such as form IHT400 for a complex estate, or shorter forms for simpler estates.
- Submit supporting documents to HMRC along with the return.
Careful and accurate preparation helps avoid delays and reduces the risk of errors that could attract interest or HMRC enquiries.
Plan for Cash Liquidity
Planning ahead involves ensuring there is adequate cash or liquid assets in the estate to pay the IHT due by the deadline. Executors can consider:
- Using money from bank or building society accounts, or other liquid investments to pay the IHT.
- Selling assets if necessary, such as shares or property, to raise funds before the due date.
- Payment from the executor's own funds, then reclaiming from the estate later if needed. This can prevent late payment interest but requires agreement with beneficiaries or personal capacity to advance funds.
Being proactive about liquidity reduces the need to seek postponements or pay interest.
Payment Options and Flexibility
Payment on Account
Executors can make early payments on account of the expected IHT liability even before the final tax figure is agreed with HMRC. These early payments reduce the amount of tax that could remain unpaid at the deadline and minimise interest charges. HMRC will credit these payments against the final IHT bill once it is calculated.
Instalment Payments
If the estate includes certain assets that take time to sell or are not immediately liquid - especially land and buildings, business interests or unlisted shares - HMRC allows payment in yearly instalments over ten years. This option must be indicated on the IHT400 return and typically applies to assets that qualify under specific conditions. Interest may still apply on the outstanding balance, but this spreads the financial burden over time.
Postponement (“Grant on Credit”)
If the estate cannot release funds before probate is granted, executors can ask HMRC to postpone payment of some or all of the tax until after the grant is issued. This involves writing to HMRC with details of why funds cannot be raised and outlining how and when payment will be made, for example through sale of property. If HMRC agrees, a legally binding undertaking to pay within an agreed timeframe is required. Interest continues to be charged on postponed amounts.
Practical Steps Executors Should Take
1. Request a Reference Number Early
Executors should apply for the IHT reference number as soon as possible, ideally before they finish asset valuations, because it can take several weeks to receive. This reference is needed before any payments can be processed.
2. Communicate with HMRC
Maintaining communication with HMRC if there are delays or uncertainties can avoid misunderstandings. If the estate is complex or valuations are incomplete near the six‑month deadline, executors should inform HMRC and consider a payment on account or a postponement application.
3. Keep Clear Records
Executors should document all steps taken: valuations, correspondence with HMRC, bank statements showing payments, and instalment arrangements. Good records support compliance and help resolve any subsequent HMRC queries or investigations. Recent data shows HMRC increasingly investigates underpayment or incorrect reporting of IHT, so thorough records can be crucial if discrepancies arise.
Common Questions About IHT Payments
Can executors pay IHT from their own bank account?
Yes. Executors can pay IHT from their own funds and later reclaim the amount from the estate once probate is issued. This can help avoid interest charges if estate liquidity is limited.
What happens if IHT is not paid on time?
If the full IHT is not paid by the six‑month deadline, HMRC will charge interest on the outstanding amount. Interest accrues daily at a rate set by HMRC, making early or partial payment beneficial.
Is interest charged on instalment payments?
Yes, interest may be charged on instalments, especially on the outstanding amount. The first instalment may not accrue interest if paid on time, but later instalments generally attract interest from the due date.
Key Takeaways
Planning for Inheritance Tax payments in estate administration requires understanding the due dates and mechanisms for payment, ensuring adequate liquidity to settle the tax bill in time, and being aware of the flexibility HMRC offers through payments on account, instalments and postponements when needed. Executors should:
- Obtain the necessary IHT reference number early.
- Prepare accurate valuations and submit the correct tax return forms.
- Consider early or partial payments to minimise interest.
- Use instalment options where appropriate.
- Keep clear records and communicate with HMRC if problems arise.
Effective planning helps ensure compliance, reduces financial strain on the estate and assists executors in fulfilling their legal responsibilities efficiently.
