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You should pay any Inheritance Tax due within six months of the date of the deceased’s death. However, in some cases, such as when the estate includes a house, you can pay in instalments over ten years.
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You can only pay Inheritance Tax in instalments on certain types of assets - usually those that may take time to sell in order to raise the money. These include:
You must pay the tax in full when the assets are sold.
You can pay Inheritance Tax by instalments on shares or securities if, at the time of death, the shares or securities enabled the deceased to control the majority (more than 50 per cent) of a company’s voting powers.
You can also pay Inheritance Tax by instalments on ‘unlisted’ shares or securities (eg they are not traded on a recognised stock exchange) in any of the following cases:
Most people choose to pay by instalments when the estate includes a house.
If you plan to sell the house, you only need to find 10 per cent of the Inheritance Tax due by the six-month deadline. You will then have a year before the next instalment is due to sell the house and pay the full balance.
If you plan to keep the house and live in it, you may prefer to pay by instalments because you only need to find 10 per cent of the Inheritance Tax each year (plus the interest), rather than having to pay all of it up front in one lump sum.
If the deceased gave you assets or property - often called a ‘lifetime gift’ - and Inheritance Tax is due on the gift, you can pay in instalments (if the assets qualify for paying in instalments) as long as you still own the assets at the time of the deceased’s death.
If the assets are unlisted shares or securities, they must remain unlisted from the time the gift is made until the deceased dies in order for you to qualify for the instalment option.
The instalment plan runs over ten years and you pay the instalments once a year in ten equal instalments. The first instalment is due on the date when the full tax would have been due if you were paying it in a lump sum (follow the link on Inheritance Tax due dates below). You may end the instalment plan at any time by paying the outstanding balance in one sum.
Generally, interest is charged on the total Inheritance Tax outstanding and is added to each instalment. However, in some cases, interest may not be due on the instalments unless they are paid after the due date. For example, if Inheritance Tax is due on your business or on agricultural land that is used as part of a working farm. This is rare because most businesses and farms qualify for 100 per cent relief from Inheritance Tax.
If you’re paying Inheritance Tax in instalments and the asset that the tax relates to is sold - or if an asset that has been in a trust is taken out of a trust - you must pay all of the unpaid tax relating to that asset immediately.
If you want to pay Inheritance Tax in yearly instalments, you must tick the relevant box on form IHT400 - the full Inheritance Tax account - and use the calculation provided to work out the instalment payments. Alternatively, you can ask HM Revenue & Customs to do the calculation for you.