Paying Inheritance Tax in Instalments UK (2026): The IHT Instalment Option Explained

The instalment option is a facility under sections 227 to 229 of the Inheritance Tax Act 1984 that allows the personal representatives of an estate to pay inheritance tax in 10 equal annual instalments rather than in one lump sum. It applies only to certain qualifying assets where an immediate lump-sum payment would create hardship — typically because the value is tied up in illiquid assets such as land or an unquoted business. The first instalment is due on the normal IHT payment date (six months after the end of the month of death). Subsequent instalments fall due on each anniversary of that date.

The instalment option is available for: (1) Land and buildings in the UK or overseas — including the deceased's home, buy-to-let property, and agricultural land. (2) A business or an interest in a business — a sole trader's business, a partner's share in a partnership, or shares in an unlisted company that give the shareholder control (broadly, more than 50% of the voting rights). (3) Unlisted shares or securities — shares in companies not listed on a recognised stock exchange, even if the shareholder does not have control. (4) Listed shares or securities where the holding gives the shareholder control of the company (broadly over 50%), or where the IHT attributable to the shares and to any other instalment-qualifying assets exceeds 20% of the total IHT bill. Instalment treatment is not available for bank accounts, personal possessions, ISAs, or other liquid assets.

Yes — and the interest treatment differs depending on the asset. For most instalment-qualifying assets (including land, houses and most unlisted shares), interest accrues on any unpaid balance from the date the first instalment was due. HMRC sets the late payment interest rate periodically; as at 2026 it remains materially higher than savings rates, so there is a real cost to deferring. The exception is assets that qualify for business property relief (BPR) or agricultural property relief (APR) — if an asset qualifies for 100% BPR or APR, the IHT attributable to it is nil, so the instalment option is academic. For assets qualifying for 50% relief, interest still accrues on the remaining half. Executors should calculate whether the interest cost of instalments outweighs the cost of raising a mortgage or other finance to pay the lump sum.

If the qualifying asset is sold before all 10 instalments have been paid, the entire outstanding balance of IHT (plus accrued interest) becomes immediately payable on the date of sale. This prevents the instalment option from being used simply as a deferral strategy once funds are available. Executors must inform HMRC of the sale and settle the outstanding balance promptly. This rule applies even if the sale proceeds are insufficient to cover the full bill — in that case the estate is simply short and the personal representatives must fund the difference from other estate assets.

Executors elect for instalment treatment by completing the IHT400 (the main inheritance tax account) and, specifically, Schedule IHT400 A (assets summary). The relevant sections ask which assets are claimed for instalment treatment. There is no separate application form — the election is made as part of the probate process. Once elected, HMRC will issue a calculation showing the first instalment due, and the executor must ensure that instalment is paid on time to avoid additional interest. If the IHT400 is not yet ready by the six-month deadline, executors can make a payment on account (an estimated payment) to prevent interest accruing on the amount ultimately payable, and then elect for instalments formally once the account is complete.

Yes. Overseas land and buildings that form part of a UK-domiciled deceased's estate for IHT purposes can qualify for the instalment option — the legislation is not limited to UK land. However, there are complications: the IHT value of foreign property must be converted to sterling, and executors will need evidence of the foreign property's value (typically a local valuation). If the property is subject to a forced heirship regime or local inheritance tax in the foreign jurisdiction, there may be double tax relief available but the interaction is complex. Executors dealing with significant overseas property should take specialist advice.

Business property relief (BPR) and the instalment option overlap but are distinct. BPR can reduce the IHT value of a qualifying business asset by 50% or 100%, reducing the IHT bill before the question of how to pay it arises. The instalment option then governs how the remaining (post-relief) IHT is paid. If BPR is 100%, there is no IHT on that asset and the instalment option is irrelevant for it. If BPR is 50%, there is still IHT on the remaining 50% of the value, and that can be paid by instalments. Importantly, a business asset that loses its BPR qualification (for example, the business is wound up before probate is granted) loses the relief entirely — the full IHT becomes payable, and the instalment option may become the only practical way to fund it.

Yes. Where an instalment-qualifying asset passes to a beneficiary before all instalments are paid (for example, a house is assented to a beneficiary during the instalment period), the liability to pay outstanding instalments can transfer to the beneficiary. This is sometimes arranged deliberately — the beneficiary takes the property and assumes responsibility for the remaining IHT instalments, which is effectively a way of funding the IHT from the asset's rental income or future sale rather than from other estate funds. The executors and beneficiary should document this arrangement clearly, and the beneficiary must be aware that they become personally liable for the outstanding IHT.