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Can Inheritance Tax Be Paid In Instalments?

Admin and Legal

Inheritance tax (IHT) can become very difficult to pay for some people. If most of the tax is due to the value of a property, then you may be asked to pay for the tax before you can even sell it. If you're starting to worry then don't. Here we'll go through all the details on inheritance tax and how it can be paid.

Do I have to pay inheritance tax?

There is a good chance that you won't have to pay inheritance tax at all as it only applies to estates over the value of £325,000. You also don't have to pay any tax if everything has been left to a civil partner or spouse. If everything above the threshold has been left to a charity, there is also no tax to pay.

If the value of the estate is above £325,000 and doesn't meet those criteria then you're going to have to pay inheritance tax. The amount due will be 40% of anything above the threshold.

If the value is £330,000, then your IHT amount would be £2,000 as that tax only applies to what is above the threshold, which in this example would be £5,000.

If the value is £1m, then the IHT amount would be £270,000 which would be a lot more burdensome.

There is an exception to this as if an estate gets passed to a surviving spouse/civil partner, they inherit their tax-free allowance. Therefore a widower could have an inheritance tax allowance of £650,000 to pass on to their loved ones.

Can you pay in instalments?

You are allowed to pay in instalments with any assets that may take time to sell. You can do this in equal instalments over a 10-year period. To do this you will need to state it on your IHT400 form.

A downside to this is that you usually have to pay interest on these instalments. While you are given this 10-year period if needed, you do have to pay the tax in full if the assets have been sold.

If you do decide to pay in instalments then the first payment would be expected by the last day in the sixth month following their death. So you have the month that they passed away, then a full six months after that.

For example, if they died on February 11th then the instalment would need to be paid by August 31st. You would then need to make your payment by this date every year.

Interest

To avoid paying interest it's always a good idea to pay it off early if you can. To do this you need to write a letter to the HMRC who will give you a final figure. While it's always tempting to pay it off early, it's worth noting that the interest on your IHT won't be very high.

The first instalment that you pay won't have any interest. On each following instalment you will have to pay interest on the full outstanding tax balance and also the interest on the instalment itself.

When you can pay in instalments

House

If you want to keep the house that you've inherited then you can pay 10% of the tax each year along with the interest. An exemption to this is agricultural land and property as this is exempt from IHT.

Shares and securities

If the person who passed away controlled more than half of a company then you can pay in installments. If they are not traded on a recognized stock exchange then it gets a little more complicated. You can pay in installments if they are worth more than £20,000 and they represent 10% or more of the total value of the shares (or ordinary shares) at the price they were first sold at.

Other factors

If 20% or more of the total tax the estate owes is on qualified assets then you can pay in instalments. You also qualify if paying in one lump sum is going to cause you financial difficulties. Finally, you can pay instalments on the net value of a 'for profit' business but this doesn't include its assets.

Can you pay inheritance tax in instalments?

As we've seen, the answer to that can be a little tricky. Thankfully there are many different ways that you're going to be able to pay in instalments. This can help to ease the burden that inheritance tax can often give you.

If you're still unsure of whether you qualify for instalments then it's always a good idea to speak to a financial advisor. If you're applicable, instalments can make your life a lot easier.

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