Probate and Inheritance Tax: How to Pay the Bill

Inheritance tax is a debt of the estate, so the executors (or administrators, if there is no will) are responsible for paying it out of estate funds, not out of their own pockets. The standard rate is 40% on the value of the estate above the available nil-rate bands, or 36% where 10% or more of the net estate is left to charity. Our separate guide, inheritance-tax-explained, covers how the bill is calculated; this guide is about paying it.

The practical sequence for an executor is usually: value the estate; work out whether any IHT is due; report the estate to HMRC (a full IHT400 account, or lighter excepted-estate reporting); pay any tax that is due before probate; apply for the grant of probate; then collect in the assets, settle any remaining tax and interest, and distribute to the beneficiaries.

The awkward part is the ordering. You generally cannot get at the deceased's money to pay the tax until you have probate, but HMRC generally will not let your probate application proceed until the tax has been paid. The Direct Payment Scheme, grant on credit, and instalment options all exist to bridge that gap, and are covered below.

Before you can pay, you need an inheritance tax payment reference number from HMRC. Apply for this at least 3 weeks before you intend to make a payment, as it does not arrive instantly.

Reporting the estate and paying the tax are two separate steps. You report by sending HMRC an account of what the estate contains. If there is inheritance tax to pay, or the estate does not qualify as an 'excepted estate', you must complete the full account on form IHT400 plus the relevant supplementary schedules.

The IHT400 sets out the full picture: the estate's assets and debts, any gifts the person made in the seven years before death, and any reliefs and exemptions being claimed (such as business relief, agricultural relief, or the spouse and charity exemptions). It is the document HMRC uses to check the tax figure and to agree the values.

There is a filing deadline. You must send the IHT400 within 12 months of the end of the month in which the person died. Miss it without a reasonable excuse and there is a penalty of up to GBP 200. For long delays a further penalty of up to GBP 3,000 can apply. Note that the IHT400 deadline (12 months) and the payment deadline (6 months) are different, so the tax can be due before the account is strictly required.

• Use IHT400 when there is tax to pay, or when HMRC needs full details of the estate even though no tax is due.
• Send the relevant supplementary schedules (for example IHT402 to transfer a late spouse's unused nil-rate band, or IHT435 for the residence nil-rate band).
• Keep your valuations evidenced. HMRC can enquire into figures for houses, shares and business interests, and interest runs on any extra tax that comes out of a revised valuation.

Inheritance tax must be paid by the end of the sixth month after the month in which the person died. So if someone died in January, the tax is due by 31 July; if they died on any day in March, it is due by 30 September. The clock runs from the end of the month of death, not the exact date.

If you have not paid by that date, HMRC charges interest on the unpaid amount from the first day of the seventh month after death, and it keeps running until the tax is cleared. The inheritance tax late-payment interest rate is 7.75% from 9 January 2026 (HMRC pegs it to the Bank of England base rate plus 4%, so it can change). This interest is not a penalty and cannot usually be avoided just because probate is delayed, so paying as early as you can is worthwhile even if the estate is not fully settled.

Where the exact bill is not yet known, executors often pay a good-faith estimate by the six-month deadline to stop or reduce interest, then reconcile later. If you overpay, HMRC repays with interest (2.75% from 9 January 2026); if you underpay, interest runs on the shortfall.

The Direct Payment Scheme (DPS) is the usual answer to the chicken-and-egg problem. It lets a bank, building society or National Savings and Investments transfer money straight from the deceased's own account to HMRC to pay the IHT, without waiting for probate.

You complete form IHT423, one for each account you want to pay from, and send it to the institution holding the money (not to HMRC). You also quote the same payment reference number that appears on your IHT400. The institution then pays HMRC directly from the deceased's funds. Most high-street banks and building societies take part, though some smaller providers do not, so check first.

If the deceased did not hold enough cash to cover the bill, executors have other options to raise the money:

• A grant on credit: ask HMRC to postpone some of the tax and interest until after probate is granted. You are still expected to pay as much as you can up front, and you sign a legally binding undertaking to pay the rest within an agreed time. Interest still runs on the postponed tax.
• An executor's loan: some banks lend against the estate specifically to fund an IHT bill, releasing the grant so the assets can then be sold to repay the loan.
• Instalments: spread the tax on qualifying assets (see below), which reduces the amount you need to find up front.
• Redeeming certain National Savings products or British Government stock directly towards the bill.

Beneficiaries can also lend or gift money to the estate to cover the tax, and be repaid once assets are realised. Whatever the source, aim to pay by the six-month deadline to limit interest.

Some assets cannot be turned into cash quickly, so HMRC lets you pay the tax attributable to them in 10 equal annual instalments rather than in one lump sum. This is an election you make on the IHT400, and it applies to specific categories of asset.

• Land and buildings, such as the deceased's home or a rental property, as long as you do not sell it.
• A controlling shareholding in a company (broadly, shares that gave the deceased control of more than 50% of the company).
• Certain unlisted shares, including a holding worth more than GBP 20,000 that represents at least 10% of the company's shares.
• A business, or an interest in a business, run for profit.

The first instalment is due on the same date as the six-month deadline. You do not pay interest on that first instalment unless you pay it late. On each later instalment, however, interest is charged on the outstanding balance, so instalments on a house are not interest-free overall. For assets newly qualifying for agricultural relief or business relief, instalments become interest-free on the outstanding balance from 6 April 2026 (late-payment interest can still apply if you miss a due date).

Crucially, the instalment plan ends the moment you sell the asset. If you sell the house or the shares part way through, the remaining tax on that asset becomes payable in full straight away, so factor this into your timing when deciding whether to sell or keep an asset.

Many estates have no inheritance tax to pay and do not need a full IHT400 at all. These are 'excepted estates'. If an estate is excepted, you report an estimated gross and net value as part of the probate application itself, rather than filing a separate IHT account, which is much lighter work and lets you apply for probate straight away.

There are three broad routes to being an excepted estate:

• Low value estate: the estate is below the inheritance tax nil-rate band (GBP 325,000 for 2026/27), or below GBP 650,000 where all of a late spouse's or civil partner's unused nil-rate band is being transferred.
• Exempt estate: everything above the nil-rate band passes to a UK spouse or civil partner, or to a qualifying charity, and the gross estate is worth less than GBP 3 million.
• Foreign domicile: the person lived permanently outside the UK when they died and the value of their UK assets is GBP 150,000 or less.

Even in an excepted estate you still have to work out the value carefully, because you confirm figures to the probate registry. If any of the conditions is breached (for example there are significant lifetime gifts, foreign assets, or trust interests), the estate stops being excepted and a full IHT400 is required. Note that the residence-based inheritance tax rules that replaced the old domicile test from 6 April 2025 changed who is within the scope of UK IHT, and can affect whether the foreign-domicile route is available; the position here is to confirm case by case, so see our residence-nil-rate-band-explained guide and take advice for any cross-border estate.