What Happens If Inheritance Tax Is Paid Late

When Inheritance Tax must be paid

The deadline for paying Inheritance Tax is six months after the end of the month in which the person died.

For example, if someone died on 10 January 2025, the IHT payment is due by 31 July 2025.

If the tax is not paid by this date, HMRC will start charging interest on the outstanding amount from 1 August 2025.

It’s important to note that IHT must usually be paid before you can obtain a Grant of Probate, which is required to administer and distribute the estate. Without payment or an approved instalment plan, the probate process may be delayed.

How to pay Inheritance Tax

IHT is paid using the Inheritance Tax reference number provided by HMRC after you submit the initial forms. Payments can be made by:

Bank transfer

Cheque

From the deceased’s bank account (with permission)

Using the Direct Payment Scheme, where the deceased’s bank or building society sends funds directly to HMRC

If the estate includes property, investments, or other non-cash assets, you may not be able to pay the full amount immediately. In this case, HMRC allows payment in instalments for certain types of assets.

Paying Inheritance Tax in instalments

If the estate includes property, shares in a business, or other illiquid assets, HMRC may allow the tax to be paid in 10 annual instalments.

You must still pay the first instalment by the usual deadline (six months after death). The remaining balance can be spread over the following years, though interest accrues on any outstanding tax.

If the property or asset is later sold, the remaining tax must be paid in full at that point.

This arrangement helps executors manage large estates where the majority of wealth is tied up in property or business assets rather than cash.

What happens if Inheritance Tax is not paid on time

If IHT is paid late, HMRC automatically charges interest on the unpaid amount. Interest starts the day after the due date and continues until the balance is fully settled.

The interest rate is variable and set by HMRC, usually aligned with the Bank of England base rate plus 2.5%.

In addition to interest, HMRC may issue penalties if the delay is due to carelessness or deliberate non-payment.

Example

If IHT of £100,000 is due on 31 July 2025 and not paid until 31 October 2025, you would owe three months’ interest on the outstanding balance. Assuming an interest rate of 7%, the additional cost would be around £1,750.

If HMRC determines that the delay resulted from negligence or failure to act, it could also impose a penalty of up to 100% of the unpaid tax in extreme cases, though this is rare when executors are cooperating in good faith.

Late submission of IHT forms

Even if you cannot pay immediately, it’s important to submit the IHT forms (usually IHT400 for taxable estates) by the same six-month deadline.

Submitting the forms late can result in penalties on top of interest. The penalty amount depends on how late the submission is:

Up to 3 months late: £100

Over 3 months late: £200

Over 12 months late: additional tax-based penalty (up to 100% of the IHT due if HMRC believes the delay was deliberate)

These fines apply per return, so large estates involving multiple forms can accumulate significant penalties if paperwork is delayed.

What to do if you cannot pay on time

If you know that you will struggle to pay by the deadline, contact HMRC as early as possible. They may agree to a payment plan or allow instalments under special circumstances.

You can also pay part of the tax upfront while selling assets to cover the rest. This shows HMRC that you are acting in good faith and helps minimise interest charges.

In some cases, executors may take out short-term probate loans or use bank facilities to pay IHT, with repayment made once estate assets are released.

Who is responsible for paying the tax

The executor or administrator of the estate is responsible for ensuring that IHT is calculated and paid correctly. However, if the estate includes jointly owned property or trust assets, liability may be shared.

Beneficiaries are not usually responsible for paying IHT directly, although they may be affected if the estate’s value is reduced by late payment penalties or interest.

If a trust or company owns some assets, the trustees or directors may be responsible for their share of the IHT bill.

How HMRC enforces late payment

If IHT remains unpaid after repeated requests, HMRC can take enforcement action, including:

Charging additional penalties and continued interest

Offsetting the debt against any other refunds owed by HMRC

Applying to court to recover the money from the estate or the executor

In serious cases of non-compliance, HMRC can pursue personal liability against executors who have distributed assets before settling the tax.

This is why executors should always ensure that IHT is fully paid or agreed with HMRC before transferring money or property to beneficiaries.

Preventing delays in payment

To avoid late payment and the resulting costs, executors can take several practical steps:

Start valuing the estate as soon as possible after death.

Contact banks, insurers, and other asset holders early to release funds.

Use HMRC’s Direct Payment Scheme for faster processing.

Seek professional help for complex estates, particularly those with property or business interests.

Keep clear records of all correspondence with HMRC and payments made.

Good preparation ensures that deadlines are met and interest charges are avoided.

Final thoughts

If Inheritance Tax is paid late, HMRC will charge interest from the day after the deadline until the balance is settled, and penalties can follow if the delay is significant or avoidable.

While administering an estate can be complicated, acting promptly and maintaining open communication with HMRC can prevent unnecessary financial stress. Executors who anticipate delays should request a payment plan or instalment agreement rather than waiting for penalties to accrue.

By staying organised, valuing assets early, and seeking advice when needed, you can make sure that Inheritance Tax is handled efficiently and that your loved one’s estate is settled fairly and on time.