What if you can’t pay an IHT bill? All the payment options explained

Important info

This article is for general guidance only and is not financial or professional advice. Any links are for your own information, and do not constitute any form of recommendation by Saga. You should not solely rely on this information to make any decisions, and consider seeking independent professional advice. All figures and information in this article are correct at the time of publishing, but laws, entitlements, tax treatments and allowances may change in the future.

An inheritance tax bill must be paid to HMRC within six months of death. If the payment deadline is missed, interest of 8.25% is charged until the bill is settled.

Finding cash to pay in time for the six-month inheritance tax deadline often poses a problem. But there are options available to the executors struggling to settle the bill. We’ll outline these below.

Getting the estate in order

When it comes to dealing with an estate after someone’s death, the main aim is to apply for probate. This is the document that allows the estate’s executors to take control of the deceased’s assets.

The complication is that most high-value estates require the executors to report the value of the estate to HMRC – and pay any IHT owed – before they can apply to the Probate Registry for the grant of probate.

This creates an uncomfortable and circular situation. The executors need assets to pay the IHT, but they need the grant to access those assets. Yet they must pay the IHT before they can apply for the grant. And this is before factoring in any other probate delays, which are common.

Find out more about how to pay an inheritance tax bill.

What are my options if an IHT bill can’t be paid?

Personal representatives (typically the executor), can usually access some of the deceased’s assets before a grant is obtained for the purpose of settling an IHT bill. Many banks and building societies will allow funds to be sent directly to HMRC for the sole purpose of paying a bill ahead of the IHT deadline, under what is known as the Direct Payment Scheme.

NS&I also allows payments to HMRC for this purpose. Many investment managers will allow funds to be sent to HMRC in return for a signed indemnity.

Beneficiaries loan the money

If there’s not enough cash readily available, the executors may need to explore options for external funding.

Greg Fletcher, senior associate in the private wealth team at law firm Cripps, says the first port of call might be to approach the beneficiaries of the estate to see if they have money that can be used to pay the tax. He is seeing this happen more and more frequently.

“Of course, the beneficiaries would need to be willing, and able, to advance funds. But they would be doing so knowing that they ultimately benefit from the interest saving and that they will be repaid once probate is granted and the executors have full access to the estate assets.”

Applying for a loan or grant on credit

As an alternative way to raise cash to meet the IHT bill, executors could apply for a commercial loan that would allow the tax to be paid and probate granted. The downside is that this transfers the liability rather than removes it. Another option is to apply for a ‘grant on credit’.

Although you can’t normally apply for probate until any IHT has been paid, HMRC can allow a probate application to proceed in certain circumstances under the grant on credit scheme, says Fletcher. “If the application is accepted, this allows the executors to proceed with the probate application and in turn gain full access to the estate assets. Sometimes this is the quickest way to access cash and prevent further interest, albeit interest will accrue on the outstanding IHT until cash is available in the estate,” he adds.

Can you pay IHT in instalments?

You can pay IHT in instalments. HMRC recognises that some assets can be difficult to sell quickly. Executors can choose to pay IHT in 10 annual instalments for qualifying assets such as land, unquoted shares and interests in businesses.

Lisa Schiel, managing associate in the trusts, estates and tax team at law firm Freeths LLP, explains the process. “IHT on non-instalment option property assets – this is essentially personal property, for example, household goods or bank accounts – which fall into column A in the IHT400 form, has to be paid to HMRC upfront upon application for a grant of probate.

“It is possible for personal representatives to elect for IHT on instalment option property (IOP) assets – which fall into column B on the IHT400 and include land, businesses and control holdings of shares – to be paid in 10 equal annual instalments,” she adds.

The first instalment is due six months from the end of the month in which the person died. Interest, currently charged at 8.25%, is usually added to each remaining instalment. When the IOP assets are sold, the right to pay IHT by instalments ceases and the remaining IHT on those assets must be paid in full.

Fletcher says the interest charge means the instalment option comes at a cost, but may be a necessary option where no other funds are available to meet the tax. Assets qualifying for agricultural property relief (APR) and business property relief (BPR) are currently generally exempt from IHT.

But this will change from 6 April 2026. Following the changes, assets which qualify for APR or BPR above a £1 million threshold will be liable for IHT at a reduced rate. This raises the risk that business premises might need to be sold to cover the bill. The government has said that the tax due can be paid over 10 annual instalments and without any interest charge.

Inheritance tax and last will on the desk. — Image credit: Shutterstock/ Perfect Wave

How to approach HMRC about a grant on credit

If you can’t access assets in the deceased’s estate before probate is granted, you can ask HMRC to delay payment of all or some of the inheritance tax and interest. This is known as applying for a grant on credit.

A grant on credit allows HMRC to issue the grant of representation of probate before the full IHT has been paid. David Fenwick, technical probate lead and senior solicitor at Co-op Legal Services, which partners with Saga Legal, says HMRC will agree to a grant on credit if it can be shown that there are assets, such as shares or properties, that can’t be sold or accessed until probate is granted.

“HMRC will require the personal representative or their solicitor to give an undertaking [a formal promise] to pay the tax at the first opportunity. This usually includes a requirement to give them a timeframe and keep them updated,” he adds.

Step 1: Prepare the paperwork

Send a signed and completed inheritance tax account form IHT 400
Any supplementary pages or supporting documents
If you’re in Northern Ireland, include Probate Summary form IHT421
If you’re in Scotland, include Confirmation form C1

Step 2: Write a formal request letter

Write a letter to HMRC providing a statement confirming that you’re unable to release funds from the estate.

In your letter, include:

A clear explanation that you’re applying for grant on credit
Put ‘grant on credit’ and your inheritance tax reference number at the top of your letter.
Explain why the full tax cannot be paid now (such as if money is tied up in an unsold property)
Tell HMRC the maximum amount that you can pay towards the inheritance tax
Outline the next steps that will be taken to raise the funds to pay the tax if it agrees to allow the grant on credit. This should be by the quickest option available.

Fletcher says that in protracted cases HMRC is likely to refer the matter to its debt recovery team and open a dialogue with the executors regarding a possible payment plan. At this stage, communication is key.

“Being open with HMRC about the issues which are preventing the executors from settling the tax and giving a best estimate for the likely time when they will be in a position to do so will manage expectations and help prevent more aggressive recovery processes being initiated.”

If there’s a property that’s not selling, it may be necessary to consider alternative sale arrangements such as auctions, adds Fenwick. “It may also be possible to consider taking out a loan – either a personal loan by the beneficiaries of the estate or an estate loan from someone who specialises in those.”

Should you take out a loan to pay the IHT bill?

A commercial loan could achieve some savings for the estate, if it means that you can pay the IHT rather than paying interest to HMRC because payment is delayed. However, the saving will only be the difference between HMRC’s interest rate (currently 8.25%) and the interest charged on a commercial loan, and the maths may not work.

Fletcher said: “Executors should be careful to avoid administration costs which simply switch the liability from HMRC to a bank and ultimately do not result in a benefit to the estate – although for some a commercial loan is the only option to settle the tax, obtain the grant and access assets in the estate.”

Can you use insurance to pay an IHT bill?

If the deceased took out a life policy which was written in trust, that can be a useful source of funds to put towards an IHT bill. A grant of probate is not required to release the insurance policy proceeds. They are paid to the trustees of the policy. The policy proceeds can be loaned to the estate and then repaid once the estate is in funds.

Other options to pay an IHT bill

If a repayment of tax – such as income tax – is owed to the deceased’s estate, it is possible to ask HMRC to use the repayment in satisfaction of an IHT bill, said Schiel.

“Also in certain limited circumstances, it is also possible for HMRC to agree to accept land or chattels in whole or partial satisfaction of an IHT bill. Items offered must be important to the national heritage. This is known as ‘acceptance in lieu’ and is dealt with by a specialist heritage team at HMRC,” Schiel adds.

Key takeaways

Facing a large inheritance tax bill with no immediate cash to pay it is a stressful position for any executor. It’s important to remember that this is a common problem with several established solutions. Whether you use the Direct Payment Scheme, arrange a loan, or agree to pay in instalments, a route forward is almost always available.

The key is to act promptly, explore all your options, and maintain clear communication with HMRC. Given the financial complexities involved, seeking professional advice from a solicitor can provide invaluable peace of mind and ensure you choose the best course of action for the estate.