Paying the IHT Bill – Spreading the Cost

27/04/2015


Meeting the cost of an inheritance tax bill can be stressful, particularly if it is first necessary to sell the deceased’s assets in order to raise the funds from which to pay the tax. However, in certain cases, you can opt to pay the tax due in instalments.

Due date

Inheritance tax is due by the end of the sixth month after the person died. For example, if any inheritance tax due on the estate of someone who died on 3 March 2015, it must be paid by 30 September 2015.

Need to know Interest is charged on payments made after the due date.

IHT liability not yet finalised?

It may be that the final IHT bill is not yet known by the due date, particularly if the deceased’s affairs are complex. Even if the IHT account is not finalised, interest will still be charged from the due date. Therefore, to minimise the interest charge, it is advisable to make payments on account of the inheritance tax bill by the due date.

Paying in instalments

Depending on the assets comprised in the estate, it may be possible to spread the cost by paying some or all of the IHT due in annual instalments over 10 years. This can alleviate cashflow problems by allowing time to sell assets to raise the funds to pay the tax. If you wish to pay in instalments, you must tell HMRC this on form IHT400.

Need to know Interest is payable where the instalment option is chosen.

The instalment option is only available in respect of the IHT due on certain assets. If the asset is sold, the outstanding balance of the tax due in respect of that asset must be paid immediately.

The option to pay in instalments is available in respect of the following assets:

  • House – payment of 10% of the bill can be made each year plus the interest due if you decide to keep the house to live in.
  • Shares and securities where the deceased’s holdings provided control of at least 50% of the company.
  • Unlisted shares and securities where they are worth more than £20,000 and at the price at which they were first sold they represented 10% of the value of the shares in the company, or 10% of the ordinary share capital of the company.
  • Business – the instalment option is available in respect of the net value of a business run for profit, but not its assets.
  • Gifts – any IHT to pay on gifts of buildings, shares and securities or all of part of a business can be paid in instalments.

The option to pay in instalments is also available if at least 20% of the IHT on the estate relates to assets which qualify for the instalment option and paying the IHT in a lump sum will cause financial difficulties.

Need to know – Each annual instalment is due on the anniversary of the due date (i.e. the end of the sixth month after death).

 

 

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