Who Pays Inheritance Tax and When Is It Due

Inheritance Tax is one of the most misunderstood areas of UK taxation. Many people assume their children will be responsible for paying the tax or they believe it comes out of the estate automatically without anyone needing to worry about deadlines. Others think it applies only to very wealthy families although rising property prices have pushed more estates over the threshold. In my opinion the confusion happens because Inheritance Tax operates differently from other taxes. It involves executors, beneficiaries, deadlines, probate and complex reliefs that change how much is paid and who has to pay it.

This guide explains exactly who pays Inheritance Tax, when it is due, who is legally responsible, what happens if the estate cannot pay, how HMRC handles the process and the real world scenarios that help make everything clearer. I will also explain the rules around property, gifts, trusts and international estates because those situations are the ones that most often lead to mistakes.

By the end you will know exactly who pays Inheritance Tax, how the tax is settled, when the deadlines apply and what you can do to prepare properly.

Who Pays Inheritance Tax: The Core Rule

The general rule is simple:

Inheritance Tax is paid by the estate, not by the beneficiaries.

This means:

• The money comes out of the estate before anything is distributed

• Beneficiaries normally receive their inheritance after tax has been settled

• The executor or administrator is responsible for organising the payment

• Beneficiaries usually do not write cheques to HMRC

In my opinion this fact alone removes a huge amount of stress for families who panic about personal tax bills after a death.

Who Is Legally Responsible for Paying Inheritance Tax

The responsibility sits with:

• The executor (if there is a will)

• The administrator (if there is no will)

These individuals must:

• Calculate the value of the estate

• Submit the Inheritance Tax forms

• Arrange payment to HMRC

• Apply for probate

• Pay any outstanding liabilities

• Only then distribute the estate to beneficiaries

Executors and administrators are personally responsible for handling the process correctly although the estate funds cover the tax.

When Is Inheritance Tax Due

The deadline depends on the asset being taxed.

1. Main rule for most estates

Inheritance Tax is due:

• By the end of the sixth month after the person has died

Example:

If someone dies in January
Inheritance Tax is due by 31 July

If payment is late HMRC charges interest.

2. Property can be paid in instalments

Inheritance Tax on property can be paid:

• Over 10 annual instalments

• With interest added each year

This applies to:

• Houses

• Land

• Rental properties

• Business premises

The idea is to prevent executors from being forced to sell property immediately.

3. Gifts have their own timetable

If the deceased made gifts in the seven years before death and Inheritance Tax is due on those gifts:

• The tax is due at the same six month deadline

• The estate must calculate the tax based on the seven year rule

• Beneficiaries of lifetime gifts are sometimes liable if the estate cannot pay

I will explain this scenario in more detail later because it is one of the few cases where someone other than the estate may pay.

How Inheritance Tax Is Paid

Executors usually pay Inheritance Tax using:

• Money from the deceased’s bank accounts

• Money raised by selling investments

• Money raised by selling property

• Life insurance policies written in trust

• Funds from a loan if the estate is illiquid

Banks can release money directly to HMRC before probate is granted. This helps executors pay the tax on time even if the accounts remain frozen.

What Happens If the Estate Does Not Have Enough Cash

This is a common scenario when someone dies owning a valuable home but little cash.

Executors can:

• Sell property or investments

• Use instalments for property

• Use life insurance (if in trust)

• Apply for a short term loan

• Ask beneficiaries to temporarily provide funds

• Use post office savings certificates or premium bonds

• Request limited payment deferral from HMRC

In my opinion estates with property and little cash create the most stress for executors. This is why proper estate planning helps reduce pressure.

When Beneficiaries Might Need to Pay Inheritance Tax Themselves

There are rare situations where beneficiaries or recipients become responsible for paying the tax. These include:

1. Gifts made within seven years of death

If someone received a large gift and the estate cannot cover the Inheritance Tax due on that gift then:

• The person who received the gift becomes liable

• They must pay the tax from their own funds

This applies to potentially exempt transfers (PETs) when the seven year rule is triggered.

2. Trust distributions

If you are a beneficiary of a trust:

• You may receive property or assets

• The trust may owe Inheritance Tax

• The trustees normally handle the payment

• Beneficiaries rarely pay directly

• In complex trusts the tax may reduce the amount received

3. Overseas estates

If the estate includes foreign property:

• Some countries require beneficiaries to pay local inheritance taxes

• The UK rules remain unchanged

• You may face tax in more than one country

4. Failed gifts with reservation

If someone gifted a property but continued living in it without paying market rent:

• HMRC treats the gift as part of the estate

• If the estate cannot pay the full tax

• The recipient may become liable for part of the bill

This scenario happens more often than expected.

What the Executor Must Do Before Paying Inheritance Tax

Before the tax can be paid the executor must complete several required steps:

• Value all assets at the date of death

• Value all debts and liabilities

• Calculate the gross estate

• Calculate the net estate

• Identify any gifts within seven years

• Apply allowances and reliefs

• Complete inheritance tax forms

• Submit the return to HMRC

• Make payment

The key forms include:

• IHT205 or IHT400 depending on complexity

• IHT421 for probate

• Schedules for property, gifts, business assets and trust assets

In my opinion most delays happen because executors underestimate how long it takes to value assets correctly.

Allowances and Reliefs That Reduce Who Pays and How Much

Executors must apply all available allowances and reliefs before paying any tax.

Allowances

• £325,000 nil rate band

• £175,000 residence nil rate band

• Transferable nil rate band between spouses

• Transferable residence nil rate band

• Spouse exemption

• Charity exemption

Reliefs

• Business Relief

• Agricultural Relief

• Woodland Relief

• Heritage Relief

When these are applied correctly they can reduce the estate’s Inheritance Tax to zero.

When Inheritance Tax Is Paid on Gifts

Gifts are treated differently depending on the timing and type.

Gifts within seven years

If the deceased made gifts within seven years the executor must:

• Add the value of the gifts back into the estate

• Work out whether tax is due

• Apply taper relief if appropriate

Who pays tax on gifts

• The estate pays first

• If the estate has insufficient funds the gift recipient pays

• Taper relief reduces tax only on the gift, not on the estate

Gifts that are immediately tax free

These include:

• Gifts to spouses

• Gifts to charities

• Small gifts up to £250 per person

• £3,000 annual gift allowance

• Normal gifts out of surplus income

These do not form part of the seven year calculation.

Inheritance Tax and Property: Special Payment Rules

Property is usually the largest part of an estate. HMRC provides special payment options.

Paying in instalments

Executors can pay Inheritance Tax on property over ten years if:

• The property is not sold

• The estate does not have enough cash

• Interest is paid annually

Selling the property first

Executors may:

• Sell the property

• Use the proceeds to settle the tax

• Distribute the remainder to beneficiaries

Using life insurance

If life insurance is written in trust:

• It pays out directly to beneficiaries

• It does not form part of the estate

• Funds can be used to pay the Inheritance Tax

• This avoids forced property sales

In my opinion many families overlook life insurance as a tool for covering IHT at a lower cost.

What Happens If Inheritance Tax Is Paid Late

HMRC charges:

• Daily interest on late payment

• Penalties for failing to submit forms on time

• Additional penalties if the delay is careless or deliberate

Executors cannot use probate delays as an excuse because IHT must be paid before probate is granted in most cases.

Interest begins from the due date not the date HMRC issues its calculation.

How Probate and Inheritance Tax Fit Together

You cannot receive a grant of probate until HMRC confirms:

• The Inheritance Tax forms have been submitted

• The correct amount of tax has been paid or arranged

Without probate the executor cannot:

• Sell the house

• Access bank accounts

• Release investments

• Distribute assets

In my opinion this is why the six month deadline exists. HMRC wants estates settled in a timely fashion.

Real World Scenarios

Scenario 1: Estate pays the tax

• Estate value £700,000

• Nil rate bands total £500,000

• Taxable estate £200,000

• IHT bill £80,000

• Executor pays from estate funds

Scenario 2: Property only estate

• Estate £500,000 home, £3,000 cash

• Executor pays IHT in instalments

• Home is sold later

• Outstanding instalments are paid on sale

Scenario 3: Gift recipient must pay

• Parent gifts £200,000 to child

• Dies four years later

• Estate does not have enough cash

• Child must pay the IHT due on the gift after taper relief

Scenario 4: Spouse pays nothing

• Husband dies leaving everything to his wife

• No IHT is due

• Wife inherits the estate tax free

• Her estate may be liable later

Scenario 5: Business relief removes all IHT

• Deceased owned a qualifying business

• Value £600,000

• Business Relief applies

• Entire business is IHT free

Common Mistakes People Make About Inheritance Tax

• Assuming children pay the tax personally

• Forgetting that IHT is due before probate

• Believing the house must be sold immediately

• Ignoring gifts given within seven years

• Not using both nil rate bands for couples

• Thinking debts of the deceased are irrelevant

• Assuming the executor can delay payment without consequences

• Believing funeral costs reduce IHT (they do not)

• Paying beneficiaries before paying tax

• Not keeping records of gifts

In my opinion the biggest mistake is distributing the estate before paying HMRC. Executors become personally liable if this happens.

Conclusion

Inheritance Tax is paid by the estate and is normally due by the end of the sixth month following death. The executor or administrator calculates the tax, submits the required forms and makes payment using estate funds. Beneficiaries usually do not pay tax directly although there are exceptions for large lifetime gifts, trusts and overseas assets. If the estate contains property but limited cash the tax can often be paid in instalments. Interest applies to late payments so acting early is essential.

In my opinion understanding who pays Inheritance Tax and when it is due is essential for anyone responsible for handling an estate. With the right preparation executors can avoid penalties, beneficiaries can receive their inheritance more smoothly and families can plan ahead with confidence.