Inheritance tax payment can be tricky to navigate – with the risk of fines and interest charges if you get it wrong.
Inheritance tax (IHT) is payable when the value of a deceased person’s estate is over their available allowances. It’s worth remembering most estates aren’t liable. But numbers will rise with the inclusion of pensions in IHT calculations from 2027, and with reductions in business property relief and agricultural property relief from 2026.
If you do need to pay an IHT bill, there is a process in place. Read on to discover how it works.
What’s on this page?
Inheritance tax is paid from your estate after you die. The executor or executors – usually one of your loved ones – is responsible for settling the bill if your estate is over your available IHT allowances.
Everyone has a standard IHT allowance of £325,000 – the amount they can pass on free of tax. There’s also an extra £175,000 allowance if there’s a residential property that passes to children or grandchildren, giving a total individual allowance of £500,000.
Any unused allowances can transfer to your spouse when you die. And you can leave assets to your spouse free of IHT. So for homeowners who are married or widowed, IHT will only be payable when the second person dies, and then only if the total estate is valued at over £1 million.
Fewer than half of all deaths in any given year need interaction with HMRC to establish whether there is a liability to be paid. And only around 1 in 20 deaths result in an IHT charge. But this number will increase from 2026, when farms and businesses lose some of their IHT relief, and will increase even more from 2027, when unused pensions become part of the estate for IHT purposes.
Inheritance tax in England and Wales is usually paid by those dealing with the deceased’s estate. So the responsibility lies with the executors named in the will, or administrators appointed if there is no will.
In Scotland, if no executor is named or if there is no will, your solicitor or the sheriff clerk will arrange for the court to appoint an executor called an ‘executor dative’ – usually the surviving spouse, or if there is no surviving spouse, another person entitled to inherit from the estate.
Wherever in the UK you are, the executor’s task is to gather the assets, settle any debts and IHT bills, and distribute the remainder of the estate as outlined in the will or according to the rules of intestacy.
However, the IHT liability can fall on others in some cases. If assets were transferred before death and become chargeable (such as certain gifts or trust transfers), liability may fall on the recipient of the gift, trustees, or even beneficiaries – especially if the tax goes unpaid by the due date. In the case of settled property, such as assets held in a trust, the trustees are usually responsible for any IHT payment due.
Niki Patel, tax and trust specialist at wealth management company St James’s Place, explains that the estate is handled by executors or personal representatives.
They gather the assets, pay any debts (including IHT), and distribute what’s left according to the will or intestacy rules. In Scotland, the system is a bit different. The beneficiaries or those vested with the property may be directly liable for IHT.
“If the tax relates to trust assets, it’s the trustees’ job to pay. And if the estate includes chargeable gifts made within seven years of death, the recipient of the gift may also become liable for IHT if the estate can’t cover it,” Patel adds.
Before you can pay an IHT bill, there’s some paperwork that needs to be completed first.
If there’s no tax to pay and the estate qualifies as an excepted estate, you usually won’t need to fill in any forms in England and Wales. In Scotland, the process for an excepted estate is that the executor should complete and lodging the Form C1 inventory, which lists the estate’s assets and liabilities, with the Sheriff Court.
Where IHT is due, the main form you’ll need is IHT400. This must be submitted within 12 months of the end of the month in which the person died.
But tax is due earlier. Usually, any IHT due must be paid within six months from the end of the month in which the person died. For example, if someone dies in March, IHT is due by 30 September.
Interest starts to accrue if the six-month deadline is not met. The IHT interest rate is currently 8.25%.
After filling out the IHT400 form, Les Cameron, head of technical at financial advice firm M&G, says your personal representatives will need to get an IHT reference number before they can pay the bill.
You can apply for this online or by post using form IHT422 - application for an inheritance tax reference.
The IHT reference number should be requested from HM Revenue and Customs at least three weeks before making a payment. For trusts, you can’t apply online. It has to be done via the IHT422 form. The address you need to send it to is on the form.
You usually need to make a payment towards any IHT due before you can get a ‘grant of representation’ (also known as ‘probate’ in England and Wales, and ‘confirmation’ in Scotland.) In Scotland, this is a strict part of the process. Once HMRC has received the IHT payment and the IHT400 form, they issue an authorisation code that allows the application for Confirmation to proceed at the Sheriff Court.
Wherever you are in the UK, Patel says: “Tax can be paid directly from the deceased’s bank accounts via the direct payment scheme, even before probate is granted. Where tax arises from lifetime gifts or trusts, other forms such as IHT100 may be required.”
In certain cases, it is possible to come to an agreement with HMRC to pay IHT over ten annual instalments. This might be if there is a property that is difficult to sell, for example. However, the first instalment must be paid within six months from the end of the month of death, and interest will be payable on the remaining instalments.
The payment deadlines for trusts are in two parts:
1) Transfers
You must pay inheritance tax on transfers into a trust or out of a trust (known as entry or exit charges) within six months of the end of the month the transfer was made.
2) 10-year anniversary charge
You must pay inheritance tax every 10 years from when the trust was set up. You must pay this within six months after each 10-year anniversary.
Your personal representatives – the executor or administrator – will have to raise money from the assets in your estate to pay the bill after you die. Some estates will have enough cash to cover the bill. But in other cases, assets such as property may need to be sold before the full bill can be paid.
Some people have a life insurance policy in place, held through a trust, which provides a tax-free payout on death to help cover an IHT bill. Cameron at M&G says different organisations have different rules on when they will release money to your personal representatives.
“Many require probate for larger amounts, and to get this the IHT bill usually needs to be paid. Some institutions, such as banks, building societies and NS&I, can pay the IHT bill directly under the direct payment scheme.”
Some investment providers can pay the bill directly too. When you’re getting your estate in order, it is important to understand whether your personal representatives will have ready access to available funds to pay any bill. It’s worth making the necessary arrangements if you do not, Cameron says. Sometimes personal representatives take out a loan against the estate to pay the IHT bill.
For simple estates that fall below the IHT threshold and have no trusts or large gifts, it’s possible to manage the process yourself – particularly now that reporting rules have been simplified.
But for larger or more complex estates – such as those involving trusts, overseas assets, gifts within seven years, or business property – the process can quickly become technical and time-consuming. The process will also become more complicated once pensions are included as part of an estate. Mistakes in IHT reporting can result in penalties or delays in probate, so professional advice offers peace of mind.
David Fenwick, technical probate lead and senior solicitor at Co-op Legal Services, which partners with Saga Legal, says: “HMRC may issue penalties when some reliefs are incorrectly claimed, and there may be time limits to claim certain allowances. It is therefore important to get it right the first time, and using an IHT expert is often the best way to ensure this.”
We partner with Co-op Legal Services to offer advice and services for you and your family.
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