A family may be ready to apply for probate, only to find that Inheritance Tax has to be dealt with first. So, when is inheritance tax due? In most cases, it must be paid by the end of the sixth month after the person died. Miss that point and HMRC will normally begin charging interest, even where probate or the sale of a property is still ongoing.
For executors, this is one of the most pressing parts of administering an estate. The rules are manageable once the dates, available funds and payment options are clear, but leaving them until the probate paperwork is ready can create an avoidable cashflow problem.
When is inheritance tax due in the UK?
Inheritance Tax is generally due by the end of the sixth month following the month of death. The deadline is based on the month, rather than the precise date, on which the person died.
For example, if someone dies on 12 January, the payment deadline is 31 July. Interest will usually start accruing from 1 August on any unpaid tax. If the death occurs on 30 January, the deadline is still 31 July.
This deadline applies whether the estate is straightforward or complex. It can therefore fall before a grant of probate has been issued, before a house has been sold, or before the executors have gathered all the estate’s investments and savings. That timing is why early planning is so valuable.
The full inheritance tax account, where one is required, should normally be sent to HMRC within 12 months of the death. However, the payment deadline comes much earlier. Executors should not assume that having up to a year to submit the account means they have up to a year to pay the tax.
Who is responsible for paying the tax?
The executors or administrators dealing with the estate are responsible for calculating, reporting and paying Inheritance Tax from the estate’s assets. They need to value everything the deceased owned, including property, bank accounts, investments, business interests, personal belongings and, in some circumstances, gifts made during the seven years before death.
The estate usually pays the bill, not the beneficiaries personally. In practice, however, beneficiaries may need to wait for distributions while the executors settle tax and other liabilities. If there is not enough readily available cash, the executors may need to use funds held in bank accounts, arrange short-term finance, or consider an instalment arrangement for qualifying assets.
A recipient of a lifetime gift can sometimes become liable where the gift creates an Inheritance Tax charge and the estate cannot or does not pay it. This is one reason why substantial gifts should be reviewed as part of wider family tax planning, rather than treated as an isolated decision.
Why payment can be needed before probate
Many people assume executors cannot pay tax until they receive the estate. Often, that is not the case. Banks and building societies can usually release money directly to HMRC from accounts held by the deceased, provided the correct authority and forms are supplied.
Executors can also make an initial payment from their own funds, although this should be approached carefully and documented properly. They are entitled to recover legitimate estate expenses and tax payments from the estate once assets become available.
Property is where the pressure is most commonly felt. A large proportion of an estate may be tied up in the family home, while the tax deadline arrives months before a sale completes. Waiting for a buyer may seem sensible commercially, but it does not stop interest running on tax that is already due.
The best approach depends on the estate. A quick sale may be right in one case, while using an instalment option and allowing more time for a proper sale may protect value in another. Executors should consider the financial and family position together, not simply focus on the deadline.
Paying inheritance tax by instalments
HMRC allows Inheritance Tax relating to certain assets to be paid in instalments over up to 10 annual payments. This can help where an estate is asset-rich but cash-poor.
The arrangement can apply to qualifying assets such as land and buildings, certain shares and securities, and some business interests. The first instalment is normally due by the standard six-month deadline. Interest may be charged on the unpaid balance, so instalments provide breathing space rather than a cost-free deferral.
If an asset paid for by instalments is sold, the remaining tax attributable to it generally becomes due. For a residential property, that means executors should factor the final tax settlement into the sale timetable and expected proceeds.
Instalments are particularly relevant to family businesses and agricultural or property-owning estates. Where Business Relief or Agricultural Relief may be available, the calculation can be more complex, but the potential tax saving can also be substantial. A valuation that is too high, a missed relief claim or poor evidence for a trading business can have a significant effect on the eventual bill.
The tax bill is not always 40% of the estate
The standard Inheritance Tax rate is generally 40% on the part of an estate above the available tax-free allowances. The nil-rate band is currently £325,000 for an individual. A further residence nil-rate band of up to £175,000 may be available where a qualifying home passes to direct descendants, subject to conditions and tapering for larger estates.
Married couples and civil partners can often transfer unused allowances to the surviving spouse or civil partner’s estate. This can mean a combined allowance of up to £1 million in the right circumstances, although eligibility depends on the estate’s value, the ownership of the home and who inherits it.
These rules affect how much tax is due, not when it is due. Executors should establish the likely liability early, including any reliefs, exemptions and transferable allowances, so that they can plan the payment route before the six-month deadline approaches.
Gifts can change the position
Lifetime gifts are a frequent source of surprise. Gifts made within seven years of death may need to be included when working out whether Inheritance Tax is payable. This includes cash gifts, transfers of property and some gifts into trust.
Not every gift is taxable. Annual exemptions, normal expenditure out of income, gifts between spouses or civil partners, and gifts to charities may be exempt if the relevant conditions are met. But records matter. If the executors cannot show when a gift was made, what it was worth and whether an exemption applied, it becomes harder to prepare an accurate account.
For gifts that do become chargeable because of a death, the tax position is normally dealt with as part of the post-death Inheritance Tax calculation. Executors should identify them early, particularly where the deceased gave away a home but continued to live in it or retained a benefit from the asset. These arrangements can bring assets back into the taxable estate under the gift-with-reservation rules.
Practical steps for executors
The first priority is to establish the date of death and write down the six-month payment deadline. Then obtain realistic valuations rather than relying on old statements, estimates or insurance figures. Property, private company shares, business assets and valuable possessions may all need specialist input.
Next, separate assets that can be accessed quickly from those that are likely to take time to sell or transfer. This makes the cash position visible. It also helps executors decide whether a direct payment from a bank account, a loan, a property sale or an instalment arrangement is the most appropriate route.
Keep clear records of every valuation, liability, gift and payment. HMRC may ask questions about the figures used, and well-organised records reduce stress for executors while protecting beneficiaries from delays.
Finally, do not leave tax planning until after a death if there is an opportunity to act earlier. Wills, ownership structures, business succession plans, pension nominations and documented gifting can all affect the eventual Inheritance Tax position. They should be reviewed together, especially where a family business, rental property portfolio or valuable home is involved.
For families and business owners, the immediate question may be when the tax must be paid. The more useful long-term question is whether the estate has been structured so that loved ones have choices, rather than a deadline-driven problem to solve. RK & Co can provide practical and simple advice to help make that planning clearer.