Paying Inheritance Tax when someone dies

People often ask me, when do I have to pay inheritance Tax and how do I pay it?

Well, the answer is 6 months after the death of the deceased. After this time, interest (currently 7%) is payable on the outstanding amount plus possible penalties.

If the deadline is approaching and you do not know the exact figure, my recommendation is to guess the amount and then "pay on account". If you underpay, you will still pay interest on the shortfall. If you overpay, HMRC will pay you interest on the excess payment. Paying interest on the shortfall is much better than paying interest on the full amount.

If the estate is basically made up of property, the tax can be paid in instalments over 10 years, however the first payment must be paid before the grant of probate can be issued and interest will be charged on the outstanding amount after 6 months, regardless whether the instalments are paid on time. So normally, once the grant is issued, the executors will pay the tax bill in full. Paying by instalment is only really an option if you want to keep the house and you have no other way of paying.

As the tax has to be paid before the grant of probate is applied for, and because the estate cannot be distributed until the grant is issued, you cannot use the estate assets to pay the tax. You could ask the bank holding the assets to pay the HMRC directly. The executor and/or beneficiary could lend the estate the money to pay the tax or the executor could take out a loan on behalf of the estate.

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