Can I Pay Inheritance Tax in Instalments?

At Towerstone, we provide specialist Inheritance Tax accountancy services for families and executors. We have written this article to explain when instalments are possible, helping you make informed decisions.

This is a question I am asked very frequently, often at a point where families are under pressure and trying to make big financial decisions quickly. In my experience inheritance tax rarely arrives at a convenient time. It usually appears when emotions are high, assets are illiquid, and cash is tight. The good news is that yes, in certain situations, inheritance tax can be paid in instalments. The less comforting news is that this option is often misunderstood, sometimes misused, and not always as flexible as people expect.

In this article I want to explain clearly and honestly whether you can pay inheritance tax in instalments in the UK, when HMRC allows it, how it works in practice, what the costs really are, and when it might or might not be the right decision. Everything I explain here is grounded in current UK rules and real world experience dealing with estates, executors, and bereaved families, with reference to guidance issued by HM Revenue and Customs and GOV.UK.

This is a long and detailed guide because in my opinion this is not a topic that should be reduced to a simple yes or no. Paying inheritance tax in instalments can be helpful in the right circumstances, but it can also quietly increase the overall cost of the estate if it is not properly understood.

Understanding the Inheritance Tax Payment Deadline

Before looking at instalments, it is important to understand when inheritance tax is normally due.

Inheritance tax must usually be paid by the end of the sixth month after the month in which the death occurred. For example, if someone dies on 10 January, inheritance tax is due by 31 July.

From experience, this deadline often surprises families. Probate itself can take longer than six months, which means tax can be due before the estate has access to all its assets.

If inheritance tax is not paid by the deadline:

• Interest starts to accrue immediately

• HMRC can pursue the estate

• Probate may be delayed

This timing issue is one of the main reasons instalment options exist.

The Basic Rule on Paying Inheritance Tax in Instalments

In short, HMRC allows inheritance tax to be paid in instalments where the tax relates to certain types of assets that are not easily converted into cash.

In my experience the most common qualifying asset is property.

Inheritance tax can usually be paid in instalments when it relates to:

• Land and buildings, including residential property

• Certain business interests

• Some unlisted shares

The instalment option is not available for all assets. Tax relating to cash, savings, listed investments, or easily realisable assets is normally expected to be paid in full upfront.

How the Instalment System Works

When instalments are allowed, inheritance tax can usually be paid over a period of up to ten years.

The structure is broadly as follows:

• The tax is divided into ten equal annual instalments

• The first instalment is due by the normal inheritance tax deadline

• Remaining instalments are paid yearly

• Interest is charged on the outstanding balance

From experience, the interest element is often overlooked at the decision stage, and in my opinion it is one of the most important factors to consider.

Which Assets Qualify for Instalment Payments?

Residential Property

The most common reason estates pay inheritance tax in instalments is because the main asset is a house.

If inheritance tax is due on a property, the portion of the tax attributable to that property can usually be paid in instalments.

This is particularly relevant where:

• The property is being sold but the sale has not completed

• Beneficiaries intend to keep the property

• There is limited cash elsewhere in the estate

From experience, this option can relieve short term pressure but it is not always the cheapest solution.

Business Assets

Inheritance tax due on certain business assets may also qualify for instalments, although Business Relief often reduces or eliminates the tax in the first place.

Where tax does remain payable, instalments may be available for:

• Shares in unlisted companies

• Interests in trading businesses

This area is more technical and in my opinion professional advice is essential.

Agricultural Property

Agricultural property can also qualify for instalment payments, although Agricultural Relief often reduces the tax to nil.

Where tax does arise, instalments may be possible.

Assets That Do Not Qualify

In contrast, inheritance tax relating to the following assets is usually not eligible for instalments:

• Cash in bank accounts

• ISAs and savings

• Quoted shares and investments

• Personal possessions of modest value

HMRC expects these assets to be used to pay tax upfront.

From experience, HMRC will look closely at whether liquid assets were available when considering any instalment request.

Interest on Instalment Payments

This is an area I believe is often misunderstood.

When you pay inheritance tax in instalments, interest is charged on the unpaid balance. The interest rate is set by HMRC and can change over time.

In practical terms this means:

• Paying in instalments usually costs more overall

• The longer the instalment period, the more interest accrues

• Early repayment can reduce interest

From experience, some estates choose instalments as a default option without fully appreciating the long term cost.

What Happens If the Asset Is Sold?

If an asset on which instalments are being paid is sold, the remaining inheritance tax attributable to that asset becomes payable immediately.

For example, if:

• Inheritance tax on a house is being paid in instalments

• The house is sold after two years

The outstanding balance of inheritance tax must usually be paid at that point.

This is an important point because instalments are not a way to delay tax indefinitely. They are linked directly to ownership of the qualifying asset.

Can You Choose to Pay Faster?

Yes, instalments are optional, not mandatory.

From experience, many estates choose to:

• Start on instalments

• Repay early once funds become available

This can be a sensible approach, especially if a property sale is pending but delayed.

In my opinion flexibility is one of the strengths of the instalment system when used deliberately.

Practical Cash Flow Problems After Death

In real life, inheritance tax problems are often about cash flow rather than total wealth.

I regularly see estates where:

• The main asset is a family home

• Savings are limited

• Beneficiaries are asset rich but cash poor

In these cases instalments can provide breathing space while longer term decisions are made.

Instalments Versus Loans

Some families consider taking out a loan to pay inheritance tax instead of using instalments.

From experience, this is a valid comparison to make.

Factors to consider include:

• Interest rates on commercial loans versus HMRC interest

• Flexibility of repayment

• Emotional impact of debt

• Speed of access to funds

In my opinion neither option is automatically better. It depends on the estate and the family’s priorities.

Using Life Insurance to Avoid Instalments

From experience, well planned estates often avoid instalments altogether through life insurance written in trust.

This can provide immediate funds to pay inheritance tax without selling assets or paying interest.

However, this is a planning step that must be taken during lifetime.

Reporting Instalment Payments to HMRC

Instalment arrangements must be correctly reported on inheritance tax forms.

This usually involves:

• Declaring which assets qualify

• Calculating the tax attributable to those assets

• Confirming instalment elections

Errors here can lead to disputes with HMRC later.

In my experience this is not an area for guesswork.

Common Mistakes I See in Practice

Over the years I have seen several recurring mistakes when it comes to paying inheritance tax in instalments.

These include:

• Assuming instalments apply to all assets

• Forgetting that interest is charged

• Missing instalment deadlines

• Failing to repay tax when an asset is sold

• Not keeping records of payments

In my opinion these mistakes are avoidable with proper advice and organisation.

Emotional Pressure and Rushed Decisions

Inheritance tax decisions are often made under pressure.

Families are grieving, probate is unfamiliar, and deadlines feel urgent. From experience this is when suboptimal choices are made.

Taking a short pause to understand options can make a significant financial difference over time.

Instalments and Executors’ Responsibilities

Executors have a legal duty to act in the best interests of the estate.

Choosing to pay inheritance tax in instalments:

• Must be justifiable

• Should be documented

• Should consider long term costs

From experience, executors should always record why instalments were chosen, especially where beneficiaries may question the decision later.

When Instalments Are Usually Sensible

In my opinion instalments are often sensible where:

• The estate is property heavy and cash poor

• A sale is planned but delayed

• Beneficiaries wish to retain the property

• Short term liquidity is the main issue

They are less attractive where sufficient cash is available to pay tax outright.

HMRC’s Approach in Practice

From experience, HMRC is generally pragmatic where instalment rules are followed correctly. Problems tend to arise when estates try to stretch the rules beyond what is allowed.

Clear communication and accurate reporting usually lead to smoother outcomes.

Key Takeaways

So can you pay inheritance tax in instalments? Yes, in the right circumstances, and it can be a valuable tool for managing cash flow in an estate. However, in my opinion it should never be treated as a default option.

Instalments come with interest, conditions, and ongoing responsibilities. Used carefully they can buy time and flexibility. Used carelessly they can increase costs and create complications.

From experience, the best inheritance tax outcomes come from understanding the full picture, knowing your options, and making deliberate choices rather than rushed ones. When instalments are chosen for the right reasons and managed properly, they can ease pressure without undermining the estate’s value.

If you would like to explore related Inheritance Tax guidance, you may find what is inheritance tax and what is the inheritance tax threshold useful. For broader inheritance tax guidance, visit our inheritance tax hub.