Can inheritance tax be paid in instalments? What you need to know

One of the biggest challenges facing executors is dealing with an Inheritance Tax (IHT) liability when much of an estate’s value is tied up in property, agricultural assets or a family business rather than readily available cash.

This issue has become increasingly relevant in today’s property market. While a house may represent a significant proportion of an estate’s value, selling it can take many months. Executors can therefore find themselves in the difficult position of needing to pay IHT before the property can has been sold.

Fortunately, HMRC recognises this problem and provides an instalment payment option that can help ease the pressure.

When is inheritance tax payable?

IHT is generally due by the end of the sixth month following the month of death. For example, if someone dies in January, the IHT will normally need to be paid by 31 July. Interest will begin to accrue on unpaid IHT after the due date.

This can create a practical problem for estates where the main asset is the family home, a farm or family business. While an executor may know that sufficient funds will ultimately be available from a future sale, the IHT liability often arises long before the asset can be converted to cash. Executors are understandably reluctant to rush the sale of a property, particularly in a slower market where achieving the best price may take time. It is also common for executors to need time to clear a property for sale.

The instalment option

HMRC allows the IHT attributable to certain assets to be paid by ten annual instalments rather than as a single lump sum. This is designed specifically for assets that may be difficult to sell quickly.

The instalment option is available for a range of assets, including:

• Land and buildings, including residential and investment properties. 
• Agricultural property and farming assets. 
• Certain business interests. 
• Shares giving control of a company (i.e. where the deceased controlled more than 50% of a company). 
• Some unquoted shares.

Where this option is chosen, the first instalment is payable on the usual IHT payment date, with the balance spread over the following nine years.

For many families, the most relevant category will be property. However, the instalment option can be equally important for families who own farms and businesses. Given the recent changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) for IHT purposes, understanding the availability of the instalment option has become even more important as part of wider estate planning discussions. 

Is there a downside?

The instalment option is very useful, but it is important to remember that it does not reduce the IHT liability.

Executors should be aware that interest will be payable on each instalment on both the full outstanding IHT balance and the instalment itself, from the date it becomes due to the date of payment (if paid late). There is no interest on the first instalment unless it is paid late.

However, for any assets qualifying for agricultural property relief or business property relief inherited on or after 6 April 2026, the instalments are interest free provided they are paid on time.

The present interest rate on unpaid IHT is 7.75% (as at 1 August 2026).

What happens if the asset is sold?

If the property or other qualifying asset is sold, any outstanding IHT attributable to that asset becomes payable immediately. In practice, this is often not problematic because the sale proceeds can fund the balance.

It is important that executors notify HMRC when an asset that qualifies for instalment payments has been sold.

A useful tool in uncertain times

The instalment option will not be appropriate in every case, but it is a useful tool that is sometimes overlooked.

For estates that are asset-rich but cash-poor, it can provide valuable breathing space and help executors manage their responsibilities without unnecessary pressure to sell assets quickly. In an uncertain property market, and particularly where estates include farming or business interests, that flexibility can make a significant difference.

Understanding the options available at the earliest opportunity can help executors plan for and manage the IHT liability more effectively, avoiding unnecessary stress during what is already a very difficult time.

If you would like any assistance with claiming the IHT instalment option, completing HMRC’s IHT account or administering an estate more generally, please do not hesitate to contact the legal department. We would be very pleased to help.