IHT Late Payment Interest: HMRC's Statutory Interest on Unpaid Inheritance Tax
IHT is due 6 months after death. HMRC charges statutory interest under s233 IHTA 1984 on any IHT paid after that date — currently around 6.75% p.a. The HMRC Direct Payment Scheme is the main tool to avoid interest when the estate is illiquid. Instalment option defers principal but interest still runs.
IHT Interest Timeline
| Event | Interest Status | Notes |
|---|---|---|
| Date of death | No interest yet | IHT liability crystallises at death. Executors must calculate the estate and prepare the IHT400. |
| 6 months after death (end of month) | Due date — interest starts on any unpaid IHT | Under s226 IHTA 1984, IHT on most assets (cash, investments, chattels) is due by the end of the 6th month after the month of death. Interest starts from this date under s233. |
| Instalment option elected (land, unquoted shares, businesses) | Interest runs on unpaid instalments | Under ss227–229, IHT on qualifying assets can be paid in 10 annual instalments. Interest runs on the outstanding balance from the due date of each instalment. If the asset is sold, all remaining IHT becomes immediately due (plus interest). |
| Payment received by HMRC | Interest stops on amount paid | Interest stops running from the date HMRC receives the payment. Payments via cheque: date of receipt. CHAPS/BACS: date credited. Ensure payment reaches HMRC before the due date to avoid any interest. |
| HMRC Direct Payment Scheme (DPS) | Counts as payment on DPS transfer date | Banks pay IHT direct to HMRC from the deceased's accounts before probate. The DPS transfer date counts as the payment date for interest purposes — this is the main tool to avoid interest where the estate is cash-heavy. |
Frequently Asked Questions
When does IHT have to be paid and when does HMRC start charging interest?
Under s226 IHTA 1984, IHT on most estate assets must be paid by the end of the sixth month after the month in which death occurred. For a death on 15 March 2026, IHT is due by 30 September 2026. HMRC charges statutory interest under s233 IHTA 1984 on any IHT that remains unpaid after the due date. Interest is charged at the HMRC late payment rate, which is set by statutory instrument and varies over time (it is linked to the Bank of England base rate plus a margin, currently running at around 6.5-7.5% per annum). Interest accrues from the due date until the date HMRC receives the payment — not just the date it is sent. The interest is charged to the estate, not the individual beneficiaries, and is a deductible expense of the estate.
Can IHT be paid in instalments and does interest still apply?
Yes to both. Under ss227–229 IHTA 1984, IHT attributable to certain assets — land and buildings, qualifying unquoted shares and securities, and certain business interests — can be paid in 10 equal annual instalments rather than as a single lump sum. The first instalment is due at the normal 6-month deadline; subsequent instalments fall due annually on the same date. Interest runs on each instalment from its due date until payment. If the executor elects the instalment option but then sells the qualifying asset before all instalments are paid, the entire outstanding IHT becomes immediately due — together with interest accrued to that date. The instalment option is therefore most useful where the asset is not to be sold (e.g. a family farm continuing in family hands), and less useful for property that will need to be sold to pay IHT.
How can executors avoid IHT late payment interest when the estate is illiquid?
The main tool to avoid interest on an illiquid estate is the HMRC Direct Payment Scheme (DPS). Under the DPS, the deceased's UK bank or building society pays IHT directly from the deceased's accounts to HMRC before a grant of probate is obtained. Executors apply to HMRC for an IHT reference number (using form IHT422), then instruct the bank to make the payment direct to HMRC under the DPS. The DPS payment counts as payment for interest purposes as of the date HMRC receives the funds — usually within a few days. Once IHT is paid (or at least the amount paid on account is sufficient to cover the non-instalment assets), HMRC issues a letter confirming the position, which can be submitted with the probate application. A second option is to take out a short-term loan to fund the IHT payment before the 6-month deadline, then repay the loan from estate proceeds once probate is granted. The loan interest may itself be deductible against the estate's income tax liability.
Is HMRC interest on late IHT tax-deductible?
No — HMRC statutory interest on late IHT is not itself deductible against IHT. The interest is an additional charge on the estate that compounds the overall cost of late payment. It is, however, a deductible administration expense for income tax purposes when calculating the estate's income tax liability during administration — though this only has practical value if the estate has taxable income (e.g. rental income or savings interest) during the administration period. Interest is not deductible against IHT itself, so every month of late payment increases the total cost to the estate and ultimately reduces the amount available for beneficiaries.
What happens if the estate genuinely cannot pay IHT by the 6-month deadline?
Where an estate is genuinely illiquid and cannot pay IHT by the 6-month deadline (for example, because the only significant asset is a property that has not yet been sold), interest will run from the due date. HMRC does not generally grant extensions to the IHT payment deadline — the statutory due date under s226 IHTA 1984 is fixed. However, HMRC does have discretion to waive or reduce interest in exceptional circumstances — this is very rare and requires a formal written application with a detailed explanation. In practice, the most common solution is: (1) use the HMRC DPS to clear as much IHT as possible from bank accounts before probate; (2) elect the instalment option for the property itself, limiting the interest to the instalment amounts; (3) take a bridging loan if necessary. HMRC does not accept property in satisfaction of IHT — it requires cash payment.
What is the current HMRC interest rate on unpaid IHT?
The HMRC late payment interest rate (which applies to unpaid IHT under s233 IHTA 1984) is set at the Bank of England base rate plus 2.5 percentage points, subject to a minimum floor. It is updated when the Bank of England changes its base rate. As of June 2026, with the Bank of England base rate at approximately 4.25%, the HMRC late payment interest rate is approximately 6.75% per annum. This rate applies from the due date until HMRC receives payment. There is also a repayment supplement rate (for when HMRC owes money back) which is base rate minus 1%, currently around 3.25%. The current rate can be confirmed on the HMRC website — search 'HMRC interest rates for late and early payments'. The rate is not subject to capital gains tax or any other offset — it is a simple accruing daily charge.
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