The HMRC Direct Payment Scheme: Paying Inheritance Tax Before Probate
Executors face a frustrating problem: HMRC requires inheritance tax to be paid before probate is granted, but probate is normally required to access the deceased’s accounts. The Direct Payment Scheme breaks this deadlock — here is how it works.
The IHT-Probate Deadlock
The problem
HMCTS Probate Registry will not issue a grant of probate until inheritance tax has been paid to HMRC. But the deceased’s bank accounts are frozen — the executor cannot access them without a grant of probate. You need to pay IHT to get probate, but you need probate to pay IHT.
The solution: Direct Payment Scheme
The Direct Payment Scheme (DPS) allows participating banks and building societies to transfer money directly to HMRC from the deceased’s accounts without requiring a grant of probate. The executor instructs the bank using form IHT423; the bank pays HMRC; HMRC applies the payment and issues the receipt needed to obtain probate.
How the Direct Payment Scheme Works: Step by Step
Complete the IHT400
The IHT400 (Inheritance Tax Account) is the main HMRC form for reporting the estate. Work through all assets, debts, lifetime gifts, and reliefs to calculate the net chargeable estate and the IHT due. For simpler estates that qualify as excepted estates, IHT205 is used instead — but excepted estates typically do not owe IHT, so the DPS is less relevant.
Obtain an IHT reference number from HMRC
Before making any IHT payment, you need an IHT reference number from HMRC. Apply online at gov.uk/paying-inheritance-tax (select 'get a reference') or by posting form IHT422 to HMRC IHT. Allow 2–4 weeks for HMRC to issue the reference. You cannot proceed with the DPS until you have this number.
Complete form IHT423 for each participating account
IHT423 authorises the bank to pay a specified amount to HMRC. Complete one IHT423 per financial institution. You specify the account number, the IHT reference, and the amount you are requesting the bank to transfer. You can split the IHT payment across multiple accounts — there is no requirement to pay from a single account. Download IHT423 from gov.uk/government/publications/inheritance-tax-direct-payment-scheme.
Send IHT423 to the bank (not to HMRC)
Send the completed IHT423 directly to each financial institution. The bank will verify the account details, confirm the funds are available, and transfer the amount to HMRC. Banks typically process DPS requests within 5–15 working days. Some banks have specialist bereavement teams — call them first to confirm their DPS procedure and preferred submission method.
HMRC issues the IHT421
Once all (or sufficient) IHT has been paid and HMRC is satisfied with the IHT400, HMRC issues form IHT421 — a certificate confirming the IHT position. This is one of the documents the Probate Registry requires with the grant application. HMRC currently sends IHT421 directly to HMCTS by post rather than to the executor — expect 4–8 weeks from submission of the IHT400 to receipt of the IHT421.
Submit the probate application
Once HMCTS confirms they have received the IHT421 from HMRC, you can proceed with the probate application online or by post (PA1P). The Probate Registry then issues the grant, allowing the executor to administer the estate — including closing bank accounts and distributing the remainder.
When There Is Not Enough Cash: Alternative IHT Payment Methods
The DPS only works if there is sufficient cash in the deceased’s accounts to cover the IHT. When the estate is property-heavy or cash-poor, executors have other options:
IHT instalments on qualifying assets
IHT on certain assets can be paid in 10 equal annual instalments rather than as a lump sum. Qualifying assets include: land and property (including the family home), shares giving a controlling interest in a company, unlisted shares, and business assets qualifying for Business Property Relief (BPR). The first instalment is due by the end of the sixth month after death. Interest runs on unpaid instalments. When the asset is sold, the full outstanding IHT becomes due immediately. This approach means probate can proceed while the IHT on property is paid over time from rental income or the eventual sale proceeds.
Executor loan
The executor can pay the IHT from their own funds — or arrange a loan in the executor's name — and be reimbursed from the estate once the grant is issued and assets are realised. This is feasible for executors with sufficient personal liquidity, but is unusual for large IHT bills. Interest on the loan is an estate administration expense, payable from estate funds.
Estate administration loan
Several specialist lenders (including some high street banks and dedicated probate finance companies) offer short-term bridging loans specifically for IHT payment before probate. The loan is secured against the estate assets (typically property) and repaid when the property is sold or the estate is distributed. Arrange before the IHT due date to avoid HMRC interest.
Life insurance policy in trust
If the deceased held a life insurance policy in trust, the policy proceeds are paid to the trustees outside the estate — no probate required. The beneficiary of the trust (often a spouse or the same person as the estate beneficiary) can lend the proceeds to the executor to pay the IHT, which is then repaid once the estate is administered. A life insurance policy written in trust specifically for IHT planning is a common strategy in larger estates.
IHT Key Dates and Interest
| Event | Timing |
|---|---|
| IHT due date (lump sum assets) | End of the 6th month after month of death |
| IHT due date (first instalment on instalment assets) | End of the 6th month after month of death |
| Subsequent instalments | Annually on the anniversary of the first instalment due date |
| Interest starts accruing | From the IHT due date on any unpaid amount |
| HMRC IHT interest rate (June 2026) | Check gov.uk — rates change with Bank of England base rate |
| Apply for IHT reference | As soon as possible after death — allow 2–4 weeks |
| IHT400 submission deadline | No formal deadline but HMRC investigates if delayed; probate cannot proceed without IHT421 |
Frequently Asked Questions
What is the HMRC Direct Payment Scheme?
The HMRC Direct Payment Scheme (DPS) is an arrangement between HMRC and participating financial institutions that allows inheritance tax to be paid directly from the deceased's bank or building society accounts before a grant of probate (or letters of administration) has been issued. Normally, executors cannot access the deceased's accounts without a grant — and the Probate Registry will not issue a grant until inheritance tax has been paid. The DPS breaks this chicken-and-egg deadlock: the bank releases the IHT amount directly to HMRC without requiring the executor to produce a grant. The payment is made on the executor's instructions, evidenced by form IHT423.
Which banks and financial institutions participate in the Direct Payment Scheme?
Most major UK high street banks participate in the Direct Payment Scheme, including: Barclays, Halifax, HSBC, Lloyds, NatWest/RBS, Nationwide Building Society, Santander, TSB, and many others. National Savings & Investments (NS&I) — Premium Bonds and savings accounts — participates for cash accounts. Not all institutions participate, and some have minimum balance requirements or internal processing timelines. Building societies and smaller banks may also participate but should be checked individually. If an account-holder's bank does not participate, the executor must use an alternative method to pay the IHT (see below).
How do I use form IHT423 to authorise a Direct Payment?
Form IHT423 (Direct Payment Scheme — bank or building society accounts) is the instruction form that authorises the financial institution to pay a specified sum to HMRC. Steps: (1) Complete the IHT400 (inheritance tax account) to calculate the IHT due. (2) Obtain IHT references from HMRC (by posting or calling HMRC IHT helpline — you need an IHT reference before the DPS can proceed). (3) Complete one IHT423 per institution — you can submit multiple if IHT is spread across several accounts. (4) Send the completed IHT423 directly to the bank (not to HMRC — the bank then pays HMRC). (5) The bank verifies the account details and makes the payment to HMRC. (6) HMRC applies the payment against the IHT account and, when all IHT is settled or properly arranged, issues a receipt (IHT421) to send to the Probate Registry.
What if the deceased's accounts do not have enough cash to pay the IHT?
This is common, particularly in estates where the main asset is property (which cannot be converted to cash until after probate and sale). Options for executors when there is insufficient cash: (1) IHT instalments for qualifying assets — IHT on certain assets (qualifying property including the deceased's main residence, controlling shareholdings in private companies, farmland under Agricultural Property Relief, assets qualifying for Business Property Relief) can be paid in 10 annual instalments rather than as a lump sum before probate. This breaks the deadlock for property-heavy estates. Interest runs from the due date on unpaid instalments. (2) Executor loan — the executor pays the IHT from their own funds and recovers from the estate once the grant is issued and assets are realised. (3) Estate administration loan — specialist lenders offer short-term bridging finance to executors specifically for IHT payment before probate. (4) Life insurance policy written in trust — if the deceased had a policy in trust, the trustees can pay out before probate; the proceeds can be used by the beneficiary to fund an executor loan or by the executor themselves.
When is the inheritance tax due date?
Inheritance tax is due by the end of the sixth month after the month in which the person died. For example: someone dies in March 2026 — IHT is due by 30 September 2026. Interest runs at the current HMRC rate (currently 7.25% above the Bank of England base rate, approximately 9.75% as of June 2026 — check HMRC for current rates) from the due date on unpaid IHT. This means executors should start the DPS process as early as possible — ideally within the first 2–3 months after death. IHT on instalment assets becomes due in arrears: the first instalment is due by the end of the sixth month after death, and subsequent instalments on the anniversary each year. The full IHT on instalment assets becomes payable immediately if the asset is sold.
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