When and how do you pay inheritance tax?

When Do You Pay Inheritance Tax?

Inheritance Tax (IHT) is a crucial consideration for those dealing with an estate after someone passes away. Understanding when Inheritance Tax must be paid and the potential financial solutions available can help executors and beneficiaries manage the process more smoothly.

When Does Inheritance Tax Have to Be Paid?

IHT usually must be paid before the estate can be distributed to beneficiaries. In most cases, when IHT is payable depends on the type of assets within the estate and how they are being transferred. Generally, the tax must be settled within six months from the end of the month in which the individual passed away (HMRC guidance).

Missing the Inheritance Tax deadline means HMRC will begin charging interest on the outstanding amount. This interest rate has also increased recently (from 7% to 8.5%).

This is why many estate executors and administrators seek solutions to ensure that IHT is paid on time, especially when estate assets are tied up in property or other non-liquid assets which may take a long time to distribute to beneficiaries if being sold.

Do You Have to Pay Inheritance Tax Before Probate?

A common question is, do you have to pay Inheritance Tax before probate? In short, yes – at least partially. Inheritance Tax typically needs to be paid before the probate process can be completed and before the estate can be distributed. Executors often encounter delays when the estate’s funds are locked in property or investments, making upfront payment difficult.

HMRC will sometimes allow a Grant on Credit, in which they would allow the deceased’s estate to be administered and inheritance tax to be paid at a later date.

How to Pay Inheritance Tax

1. Use the Deceased’s Bank Account

Many UK banks will release funds directly to HMRC if provided with:

• A copy of the death certificate
• An IHT423 form
• HMRC’s payment reference number

This is often the simplest way to settle the bill before probate.

2. Use Personal Funds (Then Reclaim Later)

If the estate’s assets are tied up, executors or family members sometimes pay from their own funds and later reimburse themselves from the estate once probate is granted.

This is more common in urgent situations but requires trust among family members and good documentation.

3. Pay in Instalments

If most of the estate is made up of property or land, HMRC may allow you to pay inheritance tax in 10 annual instalments. The first payment is usually due within six months of death.

Interest is charged on the unpaid balance after the first instalment.

This option is only available for certain types of assets, mainly property.

4. Apply for an Inheritance Tax Loan from Level

If you don’t have access to liquid funds and can’t release bank assets quickly, a short-term loan like Level’s Estate Advance can help.

This allows executors to:

• Pay inheritance tax before probate
• Settle legal or funeral costs
• Avoid delays or personal financial pressure

When Must Inheritance Tax Be Paid on Different Assets?

1. Property and Physical Assets – If the estate includes property, IHT can sometimes be paid in instalments over ten years, but interest will accrue on any outstanding balance (HMRC Property & IHT guidance).
2. Cash and Liquid Assets – If funds are available in the deceased’s bank accounts, they may be used to pay IHT directly.
3. Investments and Other Holdings – Some investments can be used to settle IHT, but access to these funds might take time.

What Taxes Have to Be Paid When Someone Dies?

Beyond Inheritance Tax, several other taxes may also arise, including:

• Income Tax on earnings up to the date of death (HMRC Income Tax after death).
• Capital Gains Tax if assets are sold at a profit before the estate is settled.
• Ongoing Property Taxes if properties remain unsold for a period of time.

What Happens if There Are No Available Funds to Pay IHT?

One of the most common challenges faced by executors is when Inheritance Tax needs to be paid, but the estate’s funds are tied up in assets that are not immediately accessible. This can delay the probate process and result in accumulating interest charges from HMRC.

How an Inheritance Tax Loan Can Help

For those struggling to pay IHT upfront, an Inheritance Tax Loan can provide a solution. At Level, we offer Inheritance Tax Loans that allow executors/administrators to access estate funds early, ensuring IHT is paid on time. The loan is repaid directly out of estate assets, meaning executors and beneficiaries do not have to use personal funds to cover the tax bill.

Key Benefits of an Inheritance Tax Loan:

• Immediate access to funds for paying IHT on time.
• Avoidance of interest charges from HMRC for late payment.
• No personal liability – the loan is repaid from the estate upon distribution.
• Streamlined probate process, reducing delays.

For more information on how our loans work, visit our Inheritance Tax Loan page.

Conclusion

Understanding when Inheritance Tax has to be paid is essential for ensuring compliance and avoiding additional charges. If the estate lacks immediate funds to settle the tax bill, an Inheritance Tax Loan can offer a practical and efficient solution.

If you’re managing an estate and facing difficulties in paying Inheritance Tax on time, visit Level to learn how we can help.

For more details on Inheritance Tax deadlines and payments, refer to the official HMRC Inheritance Tax guide.