HMRC Inheritance Tax: Customer Guide

Can I pay by instalments?

In some cases you may pay inheritance tax by instalments. However, you may have to pay interest on any tax paid this way. More on interest on instalments.

You may pay inheritance tax by instalments on certain types of assets. These are

  • land and buildings
  • certain shares and securities
  • the net value of a business or an interest in a business, including a profession or vocation, carried on for gain (this does not include individual assets of a business, which are distinct from the business as a whole)
  • timber

The most common asset on which tax may be paid by instalments is the deceased’s house.

In many estates, 100% business relief may cover businesses, business interests and unquoted shares and 100% agricultural relief may cover agricultural property. If this is so, there may be no inheritance tax to pay on them.

What shares or securities qualify for payments by instalments?

You may pay inheritance tax by instalments on shares or securities in a company if

  • they gave the deceased control of the company at the time of the transfer
  • they are unquoted and
    • you can show that the inheritance tax on their value could not be paid in one sum without undue hardship, or
    • at least 20% of the tax for which the same person is liable in the same capacity, is on assets (including the shares in question) which qualify for payment by instalments
  • they are unquoted shares and their value is more than £20,000 and the shares represent at least 10% of the nominal value of the company’s share capital or (if they are ordinary shares) at least 10% of the nominal value of the ordinary share capital

What must I do to pay by instalments?

To pay by instalments, you must give us written notice (there is a section about this in the inheritance tax account). The instalments are of 10 equal yearly amounts. The first instalment is due on the date when the whole tax would have been due if you were not paying it by instalments. More about due dates.

Remember that you may have to pay interest. More on interest on instalments.

What if I change my mind about instalments?

If you choose to pay by instalments you may, at any time, pay the balance of the tax in one sum.

Can you withdraw the option to pay by instalments?

Yes. You must pay any unpaid instalments immediately if

  • the asset is sold
  • the relevant business, or an interest in it, is sold
  • a payment is made, for example, under a partnership deed, in respect of a business interest
  • the assets were held in trust, but cease to be held in trust.

If only part of the asset is sold, you must pay a proportionate amount of the tax immediately.

Can IHT on lifetime gifts be paid by instalments?

The transferees are liable for any tax due on a lifetime gift, but they may also be able to pay by instalments. They may pay by instalments if they still own the asset when the transferor dies.

If the assets are unquoted shares or securities, they must be unquoted throughout the period (from the date of the transfer to the death of the transferor) to qualify for the instalment option.