When Do You Pay Inheritance Tax
- MAZ
- 5 days ago
- 26 min read
When Do You Pay Inheritance Tax in the UK: Expert Guide for 2026
Understanding the Six-Month Window: It's Tighter Than You Think
Picture this: you've just lost someone close to you, and whilst you're still processing that grief, HMRC is already counting down the clock. The brutal truth about inheritance tax payment deadlines is that they arrive faster than most executors anticipate—and the consequences of missing them can be financially punishing.
The Six-Month Rule and What It Actually Means
Let's be honest—none of us likes tax surprises, particularly when we're dealing with bereavement. Yet the inheritance tax payment deadline catches thousands of families off guard every year. You must pay inheritance tax by the end of the sixth month after the person died. Not six months from the date of death, mind you—by the end of that sixth month.
Here's where I've seen clients slip up countless times. If someone dies on 15th January, you might reasonably assume you have until 15th July to pay. Wrong. The deadline is 31st July—the end of the sixth month after death occurred. That distinction might seem minor, but I've watched executors scramble when they realise they're several days shorter on time than they'd calculated.
Why the Deadline Feels Impossibly Tight
The six-month window sounds generous until you actually break down what needs to happen. Between registering the death, obtaining your inheritance tax reference number (which alone takes about three weeks), valuing assets, completing forms, and arranging payment, those 180-odd days evaporate with alarming speed. You're often managing your own work commitments and family responsibilities whilst navigating unfamiliar bureaucracy during an emotionally draining period.
According to HMRC guidance, interest charges begin accumulating from the day after your deadline passes. As of October 2025, that rate stands at 8.25% per year, calculated daily on any unpaid balance. On a £100,000 inheritance tax bill, you're looking at roughly £22.60 per day in interest charges—money that serves no purpose except enriching the Treasury.
The Payment Before Probate Paradox
Here's the catch that frustrates nearly every executor I've worked with: you typically need to pay inheritance tax before you can obtain probate, yet probate is what gives you legal authority to access the deceased's assets to pay the tax. It's a circular problem that feels deliberately obstructive.
When Inheritance Tax Becomes Due: Critical Dates to Know
The Standard Timeline for Estate Deaths
Inheritance tax is due by the end of the sixth month following the month in which death occurred. This applies regardless of whether you've completed your final estate valuations or obtained probate. HMRC doesn't particularly care that you're still waiting for property valuations or trying to locate overseas bank statements.
Think of it like this: the clock starts ticking the moment someone dies, not when you're emotionally or administratively ready to deal with the financial aftermath. For deaths occurring in different months, here's what your deadline looks like:
● Death in January: Payment due by 31st July
● Death in February: Payment due by 31st August
● Death in March: Payment due by 30th September
● Death in April: Payment due by 31st October
● Death in May: Payment due by 30th November
● Death in June: Payment due by 31st December
Lifetime Gifts and the Seven-Year Shadow
Whilst this article focuses primarily on inheritance tax due on death, it's worth noting that potentially exempt transfers—substantial gifts made within seven years before death—create their own payment timeline. If someone made a gift of £400,000 three years before dying, and that gift exceeds their available nil-rate band, the recipient may face an inheritance tax bill at the reduced rate under taper relief.
The seven-year rule remains one of the most powerful inheritance tax planning tools available. Gifts made more than seven years before death fall completely outside your estate for inheritance tax purposes. Between three and seven years, taper relief reduces the tax charge on a sliding scale, from 32% at three to four years down to just 8% at six to seven years.
Payment Deadlines for Trust-Related Inheritance Tax
If you're dealing with relevant property trusts, the payment deadlines differ. Ten-year anniversary charges and exit charges on trusts have their own schedules—generally six months from the end of the month in which the charge arose. These are specialist areas where professional advice becomes essential rather than optional.
How Payment Actually Works: Practical Mechanisms
The Direct Payment Scheme: Your First Port of Call
In my 18 years advising on inheritance tax, roughly 80% of payments come through the Direct Payment Scheme. This mechanism allows executors to instruct banks and building societies to transfer funds directly from the deceased's accounts to HMRC before probate is granted.
The Direct Payment Scheme works only with accounts held in the deceased's sole name—joint accounts don't qualify. Most major UK banks participate, though you'll need to check specific procedures with each institution as they vary slightly. You'll complete form IHT423 for each participating bank, alongside your main inheritance tax return on form IHT400.
Using the Estate's Assets to Pay
Beyond the Direct Payment Scheme, several other methods exist for settling inheritance tax bills. You can pay from National Savings & Investments accounts, use government stock, or sell certain holdings. Each method has its own procedures and timelines, which is why starting early matters enormously.
Some executors take out specialist inheritance tax loans when liquid funds aren't immediately available. These short-term bridging loans cover the tax bill until probate is granted and assets can be sold or distributed. Whilst the interest rates aren't cheap, they're often preferable to HMRC's penalty interest, particularly when property sales are taking longer than anticipated.
Payment by Instalments: The Property Exception
Here's a lifeline many executors don't know exists: if the estate consists predominantly of property or land, HMRC may allow you to pay inheritance tax in ten annual instalments. The first instalment is due by the standard six-month deadline, with subsequent payments following at six-monthly intervals.
This sounds generous, and it can be, but there's a significant catch. Interest still accrues on the outstanding balance, currently at 8.25% annually. Moreover, if you sell the property before all instalments are paid, the entire remaining balance becomes immediately due. The instalment option works best when beneficiaries intend to retain the property long-term rather than selling it to distribute the estate.
Calculating What You Actually Owe
The 2025-26 Thresholds and Allowances
For the 2025-26 tax year, the nil-rate band remains frozen at £325,000 per person—a threshold that hasn't budged since 2009 and is now fixed until at least 2030. Estates valued below this amount pay no inheritance tax whatsoever.
The residence nil-rate band adds a further £175,000 when you leave your main residence to direct descendants (children, stepchildren, adopted children, or grandchildren). This potentially increases an individual's tax-free threshold to £500,000, or £1 million for married couples and civil partners who can transfer unused allowances.
The Reality of Fiscal Drag
The frozen thresholds create what economists call "fiscal drag"—inflation and rising property values pull more estates into the inheritance tax net each year without any legislative changes. According to Office for Budget Responsibility projections, house prices alone have risen over 70% since 2009, whilst the nil-rate band has remained completely static.
Let's work through a real scenario. Imagine you're looking at your late mother's estate: a £450,000 house, £80,000 in savings, and £30,000 in personal possessions. Total estate value: £560,000. She was widowed, so inherited her late husband's unused nil-rate band and residence nil-rate band, giving her a combined threshold of £1 million. Result: no inheritance tax due.
Now imagine the same estate, but your mother never married. Her threshold would be just £500,000 (£325,000 nil-rate band plus £175,000 residence nil-rate band). The £60,000 excess would attract £24,000 in inheritance tax at the standard 40% rate.
The Charitable Exemption: Reducing to 36%
One often-overlooked provision allows you to reduce the inheritance tax rate from 40% to 36% by leaving at least 10% of your "net estate" to registered UK charities. The net estate means the value remaining after deducting debts, funeral expenses, and available reliefs, but before calculating the inheritance tax itself.
This creates an interesting mathematical situation where giving away 10% saves you only 4% in tax rate—but on large estates, the numbers can still work favourably. On a £1 million taxable estate, paying 36% instead of 40% saves £40,000, whilst the charitable donation costs £100,000. Net cost: £60,000, but with £100,000 going to causes you care about rather than the Treasury.
The Tribunal Case That Changed Everything: Elborne and Home Loan Schemes
Understanding Executors of Mrs Leslie Vivienne Elborne v HMRC
In February 2025, the Upper Tribunal delivered a judgment in Executors of Mrs Leslie Vivienne Elborne Deceased & Ors v HMRC [2025] UKUT 00059 that sent ripples through the inheritance tax planning community. The case validated certain "home loan schemes" that had been under sustained attack from HMRC for years.
Mrs Elborne had sold her £1.8 million home to a trust in 2003, receiving a loan note in return, which she then gifted to another trust for her children's benefit. She continued living in the property until her death in 2011. Her executors argued that the loan note liability offset the property's value in her estate for inheritance tax purposes. HMRC challenged this as artificial tax avoidance.
Why the Tribunal Sided with the Taxpayer
The Upper Tribunal found that the debt wasn't "incurred by" Mrs Elborne in a manner that triggered the anti-avoidance provisions under section 103 of the Finance Act 1986. This was a significant win for taxpayers, particularly those who had implemented similar arrangements years earlier and faced HMRC challenges.
Think of it like this: the tribunal acknowledged that whilst the arrangement was clearly designed to save inheritance tax, it wasn't artificially contrived in a way that breached the specific statutory provisions HMRC relied upon. The distinction matters enormously in tax law—not everything HMRC dislikes qualifies as unlawful avoidance.
Practical Implications for Current Estates
Should you rush out and implement a home loan scheme based on Elborne? Almost certainly not. These arrangements were predominantly established in the early 2000s before anti-avoidance rules tightened considerably. The current legislative landscape makes new schemes far riskier.
What Elborne does tell us is that well-structured historical arrangements may survive HMRC scrutiny if they were implemented correctly and comply with the technical requirements of the relevant legislation. If you're an executor dealing with an estate that includes such a scheme, Elborne provides valuable precedent—though you'll definitely need specialist legal advice to assess your specific circumstances.
Common Mistakes That Trigger HMRC Investigations
Property Valuations: Where Most Disputes Arise
HMRC challenged property valuations in approximately 7,500 inheritance tax cases during the 2024-25 tax year, according to data obtained through Freedom of Information requests. In around 1,500 of those cases, families were forced to pay additional tax after HMRC's Valuation Office Agency determined the declared values were too low.
Here's where I've seen clients get caught. They obtain a quick estate agent valuation for probate purposes, then the property sells six months later for 15% more than the declared value. HMRC spots the discrepancy and opens an enquiry, arguing the executors undervalued the asset. What seemed like a conservative, cautious valuation suddenly appears suspect.
The solution? Obtain professional RICS valuations from qualified surveyors, ideally two independent assessments. Yes, this costs more upfront, but it provides robust defence if HMRC later questions your figures. The Valuation Office Agency conducts physical property inspections during its investigations, examining features that might attract development value—large gardens, access to additional land, or characteristics that could interest commercial developers.
Failing to Report Lifetime Gifts Properly
I cannot count how many times I've reviewed inheritance tax returns where executors simply haven't declared lifetime gifts because they didn't realise they needed to. The seven-year rule means you must report all substantial gifts made within seven years before death, even if they were to family members and seemed entirely innocent at the time.
HMRC has access to extensive data nowadays—bank records, property transaction details, investment account transfers. If you omit a £50,000 gift to your daughter four years before your death, thinking it's too old to matter or too informal to count, you're creating a compliance risk. When HMRC discovers the discrepancy, they'll assume deliberate concealment rather than innocent oversight, and the penalties reflect that assumption.
Missing the Reporting Deadline for the IHT400
Whilst the payment deadline is six months, you must submit your inheritance tax account (form IHT400) within twelve months of death. Missing this deadline triggers automatic penalties, starting at £100 and escalating based on how late you are and how much tax you owe.
I've watched executors prioritise paying the tax but neglect completing the paperwork properly, assuming that because they've paid, HMRC will be satisfied. Unfortunately, HMRC wants both the money and the detailed account, and they'll penalise you for filing late even if you've already paid every penny owed.
The 2027 Pension Changes: A Seismic Shift Approaching
What's Changing from April 2027
From 6th April 2027, most unused pension funds and death benefits will be included in your estate for inheritance tax purposes. This represents one of the most significant changes to inheritance tax in decades, fundamentally altering how many families approach retirement and estate planning.
Currently, defined contribution pensions sit outside your estate for inheritance tax. If you die with £500,000 in your pension pot, that money passes to your nominated beneficiaries without any inheritance tax charge (though income tax may apply depending on your age at death). From April 2027, that £500,000 gets added to your estate value, potentially pushing you over the threshold and triggering a 40% tax charge.
The Scale of the Impact
According to government estimates, approximately 10,500 estates will become liable for inheritance tax as a direct result of these changes—estates that would have paid nothing under current rules. A further 38,500 estates will pay more inheritance tax than they would have previously, with the average liability increasing by around £34,000.
Let's work through a practical example. Imagine you're married, own a £600,000 house jointly with your spouse, have £200,000 in savings and investments, and £300,000 in your pension. Under current rules, your estate (excluding the pension) would be worth £800,000. When the first spouse dies, everything passes tax-free to the survivor. When the survivor dies, the £800,000 estate is below the £1 million couple's threshold (combining both nil-rate bands and residence nil-rate bands), so again, no inheritance tax.
Now run the same scenario from April 2027. The survivor's estate now includes the £300,000 pension, bringing the total to £1.1 million. The £100,000 excess attracts £40,000 in inheritance tax. Your children inherit £60,000 less, simply because of when the death occurred.
Death-in-Service Benefits Remain Exempt
One crucial detail: death-in-service benefits from registered pension schemes—essentially the group life insurance many employers provide—will remain outside the scope of inheritance tax. The government specifically excluded these from the April 2027 changes after consultation feedback highlighted the administrative complexity of including them.
Similarly, dependants' scheme pensions from defined benefit arrangements are excluded. These technical distinctions matter enormously, so if you're reviewing your own estate or administering one that includes multiple pension types, you'll need specialist advice to navigate the different treatment rules.
Agricultural and Business Relief Changes: The April 2026 Deadline
The £1 Million Cap on Full Relief
Business Property Relief and Agricultural Property Relief have historically provided 100% inheritance tax relief on qualifying assets, making them extraordinarily valuable. From 6th April 2026, full relief will be capped at the first £1 million of combined agricultural and business assets. Assets above that threshold will receive only 50% relief.
This change particularly affects farming families and business owners. Imagine you own a 200-acre farm worth £2.5 million. Under current rules, the entire value would qualify for 100% relief—zero inheritance tax. From April 2026, the first £1 million gets full relief, but the remaining £1.5 million gets only 50% relief. That means £750,000 becomes taxable at 40%, creating an inheritance tax bill of £300,000.
Why the Deadline Matters Now
With barely months remaining before these changes take effect, families with substantial business or agricultural assets face critical planning deadlines. Certain planning strategies—particularly transfers of business relief-qualifying shares into discretionary trusts—can currently proceed without immediate tax charges regardless of value. After 6th April 2026, this flexibility disappears.
Share reorganisations, spousal equalisation arrangements, and creating new share classes all take longer than most people anticipate. Legal processes, professional valuations, shareholder approvals, and Companies House filings can easily consume several months. If you're contemplating any of these strategies, you're essentially out of time for casual deliberation.
Practical Strategies for Executors Facing Tight Deadlines
Start Immediately: The Four-Month Mindset
After 18 years of advising executors, my most consistent recommendation is this: treat the six-month deadline as if it's actually four months. This psychological adjustment creates essential buffer time for the inevitable delays and complications that emerge during estate administration.
Order your inheritance tax reference number within the first three weeks after death. Don't wait until you've finished other tasks—start this process immediately. Without the reference number, you cannot make any payments to HMRC, and the application process takes time even when everything runs smoothly.
Arrange Property Valuations Promptly
Contact RICS-qualified surveyors within the first month to arrange professional property valuations. Don't wait until you've gathered all other estate information. Property valuations often take four to six weeks to complete, particularly if the surveyor's diary is busy or if the property presents any complexities requiring specialist knowledge.
Consider Payments on Account
If you're reasonably confident about the rough inheritance tax liability but still finalising exact valuations, make estimated payments on account. This reduces the interest that accumulates whilst you complete your detailed calculations. If you subsequently discover you've overpaid, HMRC will refund the difference with interest once they process your final return.
This approach works particularly well when property valuations are proving slower than expected, or when you're dealing with complex asset classes that require specialist assessment. You're protecting yourself against mounting interest charges whilst giving yourself breathing room to get the valuations right.
Understand the Direct Payment Scheme Requirements
Contact the deceased's banks early—within the first month—to enquire about Direct Payment Scheme participation and their specific documentation requirements. Each bank operates slightly different procedures, and discovering their requirements three weeks before your deadline creates unnecessary stress.
You'll need form IHT423 for each participating bank, completed accurately with your inheritance tax reference number and the exact amounts you want transferred. Banks can take several weeks to process these requests, particularly during busy periods or if any information is unclear or incomplete.
Regional Variations and International Considerations
Scotland and Northern Ireland: Different Systems
Inheritance tax is a reserved matter across the UK, so the rates, thresholds, and payment deadlines remain consistent whether you're in England, Wales, Scotland, or Northern Ireland. However, the probate process itself operates under different names and procedures in each jurisdiction.
In Scotland, you apply for "confirmation" rather than probate, and the process is administered by the sheriff courts. In Northern Ireland, it's still called probate but operates under slightly different procedures than England and Wales. These distinctions don't affect when you pay inheritance tax, but they do affect the paperwork and processes for accessing estate assets.
The Residence-Based Tax System from April 2025
From April 2025, the UK moved to a residence-based system for determining inheritance tax liability on worldwide assets. If you've been resident in the UK for 10 out of the last 12 years before death, your worldwide assets become subject to UK inheritance tax, even if you're domiciled elsewhere.
This particularly affects British expats who've moved abroad and foreign nationals who've lived in the UK for extended periods. The old domicile-based rules created complex questions about intention and permanent home. The new residence test provides more certainty but catches more estates in the inheritance tax net.
Double Taxation Treaties and Foreign Assets
If the estate includes assets located overseas, you may face inheritance tax in both jurisdictions. The UK has double taxation treaties with many countries, but these don't always provide complete relief. Professional advice becomes essential when dealing with foreign property, overseas bank accounts, or international investments.
I've seen families assume that because they paid estate taxes in France on a holiday home, they won't owe UK inheritance tax on the same asset. Unfortunately, the relief provided by double taxation treaties often covers only part of the liability, and the calculation mechanisms can be fiendishly complex.
When HMRC Challenges Your Return: Dispute Resolution
The Enquiry Process and What Triggers It
HMRC opens formal enquiries into inheritance tax returns when their data analytics flag potential discrepancies or when the estate includes characteristics that historically correlate with errors or undervaluations. High-value properties, substantial lifetime gifts, business assets claiming reliefs, and overseas assets all attract heightened scrutiny.
You'll receive a formal notice of enquiry, typically within a year of submitting your IHT400. This opens a window during which HMRC can request additional information, challenge valuations, or question whether claimed reliefs genuinely qualify. The enquiry period can last months or even years if disputes prove contentious.
First-Tier Tribunal: Your Right of Appeal
If you cannot resolve disagreements with HMRC through correspondence and negotiation, you have the right to appeal to the First-Tier Tribunal (Tax Chamber). This independent judicial body hears tax disputes and makes binding determinations on contested matters.
Tribunal cases provide valuable precedents that shape how inheritance tax rules are interpreted and applied. Cases like Carvajal and Carvajal (Executors of the Estate of Mrs Jennifer Fleet) v HMRC [2024] UKFTT 651 (TC) demonstrate how tribunals scrutinise both taxpayer arrangements and HMRC's administration of the system.
In the Carvajal case, Mrs Fleet entered into arrangements eight days before her death that aimed to reduce her estate's inheritance tax liability by £1.4 million through a guarantee provided to a trust. The tribunal ultimately rejected HMRC's substantive arguments, though the executors benefited from a significant procedural error by HMRC that had inadvertently issued a certificate of discharge.
The Importance of Proper Record-Keeping
Every inheritance tax dispute I've seen ultimately comes down to documentation. Can you prove the values you declared? Do you have contemporaneous records of lifetime gifts? Can you demonstrate that business assets genuinely qualified for relief?
Maintain comprehensive records from the outset. Keep copies of all valuations, correspondence with HMRC, bank statements showing account balances at death, documents evidencing debts and liabilities, and detailed notes about any judgement calls you made during the estate administration.
Special Situations: Complexity Beyond Standard Estates
Multiple Jurisdictions and Domicile Questions
When someone with UK connections dies whilst living abroad, or when a foreign national dies whilst resident in the UK, determining inheritance tax liability becomes significantly more complex. The residence rules from April 2025 provide more certainty than the old domicile test, but transitional cases and historical domicile elections create ongoing complications.
I've worked with estates where simply establishing which country has primary taxing rights took six months of correspondence between tax authorities and specialist advisers. These aren't situations for DIY administration—you need professionals who understand international estate taxation.
Excluded Property Trusts and Foreign Domiciliaries
A recent First-Tier Tribunal case, Accuro Trust (Switzerland) SA v HMRC [2025] UKFTT 464 (TC), clarified important rules about excluded property trusts. When a non-UK domiciled settlor adds assets to an offshore trust and later becomes UK-domiciled, assets deposited after becoming UK-domiciled can still qualify as "excluded property" exempt from inheritance tax under certain circumstances.
These technical distinctions matter enormously for wealthy non-UK domiciliaries considering whether to relocate to the UK. The interaction between trust law, domicile rules, and inheritance tax creates a complex web where professional advice isn't optional—it's essential.
Deeds of Variation: Redirecting Inheritances
Within two years of death, beneficiaries can execute deeds of variation that redirect inheritances to different recipients. For inheritance tax purposes, these variations are treated as if the deceased had made the revised disposition themselves, potentially reducing or eliminating inheritance tax liability.
Imagine your mother left her entire £800,000 estate to you, creating a £110,000 inheritance tax bill. Your children would inherit the estate from you eventually, potentially triggering another inheritance tax charge. By executing a deed of variation to redirect part of the inheritance directly to your children, you might eliminate or reduce the immediate tax charge whilst also reducing your own future estate.
Deeds of variation require careful drafting and must meet specific technical requirements to achieve the desired tax treatment. They're powerful tools but require professional advice to implement correctly.
The Human Side: Balancing Compliance and Grief
The Emotional Burden of Tight Deadlines
Let's step back from the technicalities for a moment and acknowledge something I see constantly in my practice: the six-month inheritance tax deadline feels brutally unsympathetic to people dealing with grief. You're processing the loss of someone you loved whilst simultaneously navigating complex bureaucracy, tight deadlines, and significant financial stakes.
I cannot change the deadlines—they're set by statute, and HMRC shows no flexibility regardless of your circumstances. What I can tell you is that you're not alone in finding this overwhelming, and there's no shame in seeking professional help to navigate the process.
When to Engage Professional Advisers
You don't necessarily need professional advisers for straightforward estates below the inheritance tax threshold. But if the estate exceeds £325,000, includes property passing to direct descendants, involves lifetime gifts within seven years of death, contains business or agricultural assets claiming relief, or includes overseas assets, professional advice rapidly shifts from helpful to essential.
Solicitors specialising in probate and estate administration can manage the entire process on your behalf. Tax accountants can complete the inheritance tax calculations and forms. Specialist valuers can assess complex assets. These professionals aren't cheap, but the cost often pales beside the potential penalties, interest charges, and stress of getting things wrong.
The Cost of Getting It Wrong
Missing the six-month deadline triggers interest charges at 8.25% annually on any unpaid inheritance tax. Penalties for late submission of the IHT400 start at £100 and escalate based on how late you are and the amount of tax involved. Errors on your return attract penalties ranging from 0% to 100% of the additional tax due, depending on whether HMRC considers the error careless, deliberate, or deliberate and concealed.
Beyond financial penalties, executors face potential personal liability if they distribute the estate without ensuring all inheritance tax has been paid. If you pay out inheritances to beneficiaries then discover you've underpaid HMRC, you're personally liable for the shortfall if the estate no longer has sufficient assets to cover it.
Summary of Key Insights
● Inheritance tax payment is due by the end of the sixth month following the month of death—not six months from the death date itself; this subtle distinction catches many executors by surprise and shortens the available payment window.
● The payment-before-probate paradox creates practical challenges—you typically must pay inheritance tax before obtaining probate, yet probate grants you legal access to the deceased's assets needed to pay the tax; the Direct Payment Scheme provides the primary solution to this circular problem.
● Start estate administration immediately, treating the deadline as four months rather than six—order your inheritance tax reference number within three weeks, arrange professional property valuations within the first month, and contact banks about the Direct Payment Scheme early to create essential buffer time for inevitable delays.
● HMRC charges 8.25% annual interest on late payments, calculated daily from the day after your deadline; on a £100,000 tax bill, this equates to approximately £22.60 per day in avoidable interest charges that benefit nobody except the Treasury.
● Property valuations trigger the majority of HMRC disputes—obtain RICS-qualified professional valuations rather than informal estate agent estimates; if the property later sells for significantly more than declared, HMRC will investigate and potentially assess additional tax plus penalties.
● The Elborne Upper Tribunal case validated certain home loan schemes established pre-2003, overturning HMRC challenges and providing precedent for similar historical arrangements; however, these structures are unsuitable for new implementations under current anti-avoidance legislation.
● From April 2027, most unused pension funds will be included in estates for inheritance tax purposes—this affects an estimated 10,500 estates that would currently pay no inheritance tax, with average liabilities increasing by £34,000; death-in-service benefits and dependants' scheme pensions remain exempt.
● Business Property Relief and Agricultural Property Relief will be capped at £1 million from April 2026—assets above this threshold receive only 50% relief rather than 100%, creating substantial new liabilities for farming families and business owners; time for pre-implementation planning has essentially expired.
● The instalment option allows ten annual payments when estates consist predominantly of property—the first instalment remains due at the six-month deadline, interest continues accruing at 8.25% on outstanding balances, and selling the property triggers immediate payment of all remaining instalments.
● Executors face personal liability if they distribute estates without ensuring all inheritance tax has been paid—if you pay beneficiaries then discover additional tax is owed, you're personally liable for the shortfall when the estate lacks sufficient remaining assets; this risk makes thorough valuations and conservative compliance essential rather than optional.
FAQs
Q1: Can someone pay inheritance tax from their personal account if the estate lacks liquid funds?
A1: Absolutely, and in my experience with clients, this happens more often than you'd think. As an executor, you're perfectly entitled to pay the inheritance tax bill from your own personal bank account, then reclaim the money from the estate once probate is granted. It's completely voluntary—HMRC doesn't expect or require you to do this. However, around 15% of executors choose this route, particularly when they're also beneficiaries and can see the estate has sufficient value. Keep meticulous records of your payment, including bank statements and the HMRC payment reference. Once you receive probate and can access estate funds, you reimburse yourself before distributing money to other beneficiaries. Your payment becomes an estate expense, just like solicitor fees or valuation costs. The main advantage is eliminating any risk of late payment interest charges at the current rate of 8.25% annually.
Q2: What happens if the estate contains mostly property and very little cash to pay the tax bill?
A2: Well, it's worth noting that this creates what we call an "asset-rich, cash-poor" situation, and it's remarkably common with British estates. You've got several options here. First, you can apply to pay the inheritance tax in ten annual instalments if the estate consists predominantly of property or land. The first instalment remains due by the standard six-month deadline, but you then have breathing room for the rest. Be aware though—interest continues accruing on the outstanding balance at 8.25% annually. Second, you might consider an inheritance tax loan, which is essentially a bridging loan that covers the tax bill until probate is granted and the property can be sold. These aren't cheap, but the interest rates are often more favourable than HMRC's penalty charges. Third, in rare cases, HMRC may agree to what's called a "Grant on Credit," allowing you to obtain probate before paying all the tax, though they're increasingly reluctant to offer this. Consider a freelance graphic designer in Manchester whose mother left her a £600,000 house but only £8,000 in savings—she took out a specialist inheritance tax loan for £110,000, which was repaid six months later when the house sold.
Q3: Does someone need to pay inheritance tax on joint bank accounts they shared with the deceased?
A3: This gets surprisingly complicated, and I've seen executors make costly assumptions here. The short answer is: it depends on who funded the account. Most joint bank accounts in the UK are held as "joint tenants," meaning the surviving account holder automatically inherits the balance without needing probate. However—and this is crucial—for inheritance tax purposes, the account's value may still be included in the deceased's estate based on their contributions. If your mother put all £50,000 into a joint account with you, then her entire £50,000 share counts towards her estate value for inheritance tax, even though you inherit it automatically. HMRC typically treats account holders as owning a share proportionate to their contributions. If both of you contributed equally to a £40,000 account, only £20,000 would be included in her estate. The inheritance tax liability on joint accounts passing by survivorship falls on the surviving account holder, not the estate—unless the deceased's will specifies otherwise. For spouses and civil partners, this usually isn't problematic since spousal transfers are exempt from inheritance tax. But for unmarried partners, parents and children, or friends, it can create unexpected tax bills.
Q4: Can executors make payments on account before knowing the exact inheritance tax liability?
A4: In my experience with clients, the key is understanding that payments on account are not just allowed—they're often strategically wise. If you're reasonably confident about the rough inheritance tax liability but still finalising exact valuations, you can absolutely make estimated payments to HMRC. This approach reduces the interest that accumulates whilst you complete your detailed calculations. For example, imagine you're an executor dealing with an estate that clearly exceeds £500,000, but you're waiting for a specialist valuation on some vintage cars. You know inheritance tax will definitely be due, even if you don't yet know the precise figure. Making a payment on account of, say, £40,000 immediately protects you against mounting interest charges at 8.25% annually. If you subsequently discover you've overpaid, HMRC will refund the difference with interest once they process your final return. This works particularly well when property valuations are proving slower than expected, or when you're dealing with complex asset classes requiring specialist assessment.
Q5: What happens if someone misses the six-month inheritance tax payment deadline?
A5: Let's be honest—missing the deadline triggers consequences you want to avoid. HMRC begins charging interest on the unpaid balance from the day after your deadline passes. For the 2025-26 tax year, that rate stands at 8.25% per year, calculated daily on any unpaid balance. On a £100,000 inheritance tax bill, you're looking at roughly £22.60 per day in interest charges. This isn't a penalty—it's simply interest on late payment, but it adds up shockingly fast. Consider a client in Birmingham whose father died on 15th March, making the deadline 30th September. She missed it by just three weeks because property valuations took longer than anticipated. Those 21 days cost her an additional £475 in interest on her £100,000 tax bill. There's also a separate penalty regime for late submission of the inheritance tax account form IHT400, which starts at £100 and escalates based on how late you are and the amount of tax involved. The most concerning aspect is that if you're an executor who distributes the estate without ensuring all inheritance tax has been paid, you can become personally liable for the shortfall if the estate lacks sufficient remaining assets to cover it.
Q6: Can inheritance tax be paid through the Direct Payment Scheme if the deceased had multiple bank accounts?
A6: Absolutely, and this is actually the most common payment method for inheritance tax in the UK. You can use the Direct Payment Scheme with multiple accounts simultaneously, which is brilliant when the deceased had savings spread across several banks or building societies. Here's how it works practically: you complete form IHT423 for each participating bank, specifying exactly how much you want transferred from that particular account to HMRC. For instance, imagine your father had £40,000 in Barclays, £25,000 in Nationwide, and £15,000 in Santander, with a total inheritance tax bill of £70,000. You could instruct Barclays to transfer £40,000, Nationwide to transfer £25,000, and Santander to transfer £5,000, covering the entire bill across three institutions. The crucial limitation is that the Direct Payment Scheme only works with accounts held in the deceased's sole name—joint accounts don't qualify, nor do accounts requiring two signatures. Most major UK banks participate, though each has slightly different documentation requirements and processing times, which is why I always tell clients to contact the banks within the first month after death rather than waiting until you're three weeks from the deadline.
Q7: Does the inheritance tax payment deadline change if the deceased died abroad but was UK resident?
A7: Well, it's worth noting that the six-month payment deadline remains exactly the same regardless of where the death occurred, provided the deceased was UK resident or domiciled for inheritance tax purposes. If a British person dies whilst on holiday in Spain, or a long-term UK resident passes away whilst visiting family in India, the deadline is still the end of the sixth month following the month of death. What does change—and this can complicate matters significantly—is the documentation and probate process. You'll need an official death certificate that's recognised in the UK, which often requires translation and apostille certification. This can consume several weeks. For the 2025-26 tax year, the UK operates a residence-based system for determining inheritance tax liability on worldwide assets. If someone has been resident in the UK for ten out of the last twelve years before death, their worldwide assets become subject to UK inheritance tax, even if they died abroad. I've worked with estates where establishing which country has primary taxing rights took six months of correspondence between tax authorities and specialist advisers. Start the inheritance tax process immediately when dealing with an overseas death, because the administrative hurdles eat into your six-month window faster than you'd expect.
Q8: What portion of a jointly-owned property gets included in the deceased's estate for inheritance tax?
A8: This depends entirely on how the property ownership was structured, and I've seen this trip up executors countless times. In England, Wales, and Northern Ireland, property can be owned as either "joint tenants" or "tenants in common." With joint tenants—the most common arrangement for married couples—the property automatically passes to the surviving owner by the right of survivorship, regardless of what the will says. However, for inheritance tax purposes, the deceased's share (usually 50% for two owners) is still included in their estate valuation. With tenants in common, each person owns a defined share, which passes through their will or under intestacy rules rather than automatically to the co-owner. Consider a property in Leeds worth £500,000 owned by two sisters as tenants in common, each owning 50%. When one sister dies, her £250,000 share is included in her estate for inheritance tax purposes and passes according to her will—it doesn't automatically go to the surviving sister. If the total estate exceeds the available thresholds, that £250,000 could trigger a £100,000 inheritance tax charge at 40%. Scottish law uses "joint owners" and "common owners" instead, but the principles are similar.
Q9: Can someone delay the inheritance tax payment if they're waiting for a life insurance payout?
A9: In my experience with clients, this situation creates genuine frustration because the timing rarely aligns conveniently. HMRC doesn't extend the six-month deadline simply because you're waiting for a life insurance payout, even if that payout was specifically intended to cover the inheritance tax bill. The deadline remains firm regardless of administrative delays by insurance companies. However, you have practical options. First, if the life insurance policy was written in trust—which I always recommend for policies intended to cover inheritance tax—the payout sits outside the estate and can be accessed quickly without waiting for probate. The trustees can receive the money within weeks and use it to pay HMRC directly. Second, if the policy wasn't in trust and forms part of the estate, you might pay the tax from other estate funds or make a payment on account from your personal funds, then reimburse yourself when the insurance pays out. Third, consider whether the insurance company's delay is reasonable—if they're taking three months to process a straightforward claim, escalate through their complaints procedure whilst simultaneously exploring alternative payment methods. A client in Cornwall whose husband died in February faced exactly this situation: the £150,000 life insurance intended for inheritance tax wasn't paid until late July, two weeks past the deadline. She paid from estate savings to avoid interest charges, then topped up those savings when the insurance finally arrived.
About the Author
Maz Zaheer, AFA, MAAT, MBA, is the CEO and Chief Accountant of MTA and Total Tax Accountants, two premier UK tax advisory firms. With over 15 years of expertise in UK taxation, Maz provides authoritative guidance to individuals, SMEs, and corporations on complex tax issues. As a Tax Accountant and an accomplished tax writer, he is renowned for breaking down intricate tax concepts into clear, accessible content. His insights equip UK taxpayers with the knowledge and confidence to manage their financial obligations effectively.
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