Can Inheritance Tax Be Paid In Instalments?

Inheritance tax IHT can become very difficult to pay for some people. Here we'll go through all the details on inheritance tax and how it can be paid.

Inheritance planning. Who gets what, when, where and why.

It’s not an easy discussion or decision. And did you know about Inheritance Tax (IHT)?

IHT can become difficult to pay sometimes. If you’re starting to worry then take a breath and take a sip 🍹

Here, we’ll go through some details on inheritance tax and how it can be paid.

What is IHT

The first thing to know is that inheritance tax is only applicable 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. And, if everything above the threshold has been left to a charity, there is no tax to pay.

However, 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 the tax only applies to what is above the threshold, which in this example would be £5,000.

Outlier: If an estate gets passed to a surviving spouse/civil partner, they inherit their tax-free allowance as well. Therefore, the widower would have an inheritance tax allowance of £650,000 to pass on to their loved ones.

Can I pay in instalments?

You are allowed to pay for any assets in instalments 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 inheritance tax form.

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

If you do decide to pay in instalments, then the first payment would be expected by the last day in the full sixth month following their death. For example, if you 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

It’s worth noting though, that the interest on your IHT won’t be very high. And that the first instalment you pay won’t have any interest. However, on each following instalment, you will have to pay interest on the full outstanding tax balance and also the interest on the instalment itself.

The only way to avoid paying interest is to pay the instalments off faster. To do this you need to write a letter to the HM Revenue & Customs who will give you a final figure.

When can I pay in instalments? (some nitty-gritty details 😵)

House: If you want to keep the house that you’ve inherited, then you will need to pay 10% of the tax each year along with the interest. An exception to this is agricultural land and property, as it is exempt from IHT.

Shares and securities: If the person who passed away controlled more than half of a company, you can pay in instalments. If they are not traded on a recognized stock exchange, you can pay in instalments 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.
  • You can pay in instalments on the net value of a “for profit” business, but this doesn’t include its assets.

The bottom line

As you’ve read, IHT can be paid in instalments in certain situations. If you’re still unsure of whether you qualify for instalments, (it was a lot of information I know 😬) it’s a good idea to do some research or speak to a financial advisor.

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FF Bequest Limited, trading as Bequest, is authorised and regulated by the Financial Conduct Authority with firm reference number 923791. You can check our authorisation on the FCA Financial Services Register by visiting the following website: register.fca.org.uk . We are registered in England and Wales, Registered office address: Founders Factory, Northcliffe House, London, United Kingdom, W8 5EH. Company Number 12367897.

Regulated by the Information Commissioner's Office (ICO) [ZA662891]. “Bequest" is trademark protected by FF Bequest Limited (UK00003452648). FF Bequest Limited is registered in England and Wales, No 12367897.

0203 916 5433

FF Bequest Limited, trading as Bequest, is authorised and regulated by the Financial Conduct Authority with firm reference number 923791. You can check our authorisation on the FCA Financial Services Register by visiting the following website: register.fca.org.uk . We are registered in England and Wales, Registered office address: Founders Factory, Northcliffe House, London, United Kingdom, W8 5EH. Company Number 12367897.

Regulated by the Information Commissioner's Office (ICO) [ZA662891]. “Bequest" is trademark protected by FF Bequest Limited (UK00003452648). FF Bequest Limited is registered in England and Wales, No 12367897.

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