Interest on Inheritance Tax UK: HMRC Late Payment Rates and How to Avoid Them
Inheritance tax is due six months after the end of the month of death — but probate often takes much longer. HMRC charges daily interest on any unpaid amount from the due date. Knowing how to make a payment on account before probate is the most practical way to stop the interest clock running.
Current HMRC IHT interest rate (2026)
HMRC charges interest on late IHT at Bank of England base rate + 2.5%. With the Bank of England base rate at approximately 4.25% in early 2026, the current late payment interest rate is approximately 6.75% per annum, accruing daily. This rate is reviewed whenever the Bank of England changes the base rate. HMRC pays repayment interest at BoE base rate − 1% (approximately 3.25%) on overpaid IHT.
When is inheritance tax due?
Under section 226 IHTA 1984, IHT arising on a person’s death is due six months after the end of the month in which the person died. This is known as the “six-month rule”.
Example: calculating the due date
- Death on 15 March 2026 → end of March 2026 → add 6 months → IHT due 30 September 2026
- Death on 1 July 2026 → end of July 2026 → add 6 months → IHT due 31 January 2027
- Death on 30 November 2026 → end of November 2026 → add 6 months → IHT due 31 May 2027
Interest begins accruing from the day after the due date if the tax has not been paid. Critically, the interest clock runs regardless of whether probate has been granted — the fact that estate assets are frozen pending probate does not suspend HMRC’s entitlement to interest.
How to stop the interest clock: payment on account
The most effective way to avoid IHT interest is to make a payment on account to HMRC before the due date — even before probate is granted. The steps are:
- Obtain an IHT reference number:Apply using form IHT422 (or via HMRC’s online service) as soon as the death occurs. HMRC issues the reference number within a few weeks. You cannot make a payment without it.
- Estimate the IHT due: Calculate a conservative estimate of the total IHT, erring on the side of over-estimating. Include all assets (property, investments, cash, pensions from April 2027) and deduct liabilities and exemptions. If the estate includes jointly held property or trust assets, these must be included.
- Source the funds:The payment can come from the deceased’s bank account (some banks release funds specifically for IHT payment before probate — ask the bank directly), from a “probate loan” (specialist lenders offer short-term finance secured against the estate), or from executors’ or beneficiaries’ own funds (reimbursed from the estate once probate is granted).
- Pay HMRC:Use the IHT reference number to make the payment by bank transfer. HMRC credits the payment to the estate’s account and stops charging interest on the amount paid from the date of payment.
- File the IHT400 before probate: The IHT400 (with supporting schedules) must be submitted before the Probate Registry will issue the grant. The payment on account is shown on the IHT400 Calculation. HMRC checks the figures and issues an IHT421 (confirmation of IHT paid) which the Probate Registry requires.
Interest and instalment elections
For qualifying assets — broadly, land and buildings, controlling shareholdings in unlisted companies, and business or agricultural property — executors can elect under s.227 IHTA 1984 to pay IHT in 10 equal annual instalments. The first instalment is due on the normal IHT due date (6 months after end of month of death), and subsequent instalments fall due annually on that anniversary.
The key advantage for interest purposes is that interest runs on each instalment only from the date that instalment was due — not from the original IHT due date. This means:
Without instalment election
All IHT is due at the 6-month date. Interest runs from that date on the full unpaid amount — including amounts not yet paid because probate is pending.
With instalment election (qualifying assets)
Only 1/10 of the IHT is due at the 6-month date. The remaining 9/10 carries interest only when each subsequent instalment falls due.
If a qualifying asset is sold during the instalment period, the remaining IHT becomes immediately payable — with interest from when each instalment was originally due, not from the sale date. Electing instalments on a property that might be sold quickly therefore carries risk.
When HMRC pays repayment interest
If an estate overpays IHT — typically because a payment on account was larger than the final liability, or because a valuation was revised downwards — HMRC refunds the overpayment with repayment interest. The repayment interest rate is Bank of England base rate minus 1 percentage point (currently approximately 3.25%).
Repayment interest runs from the date the overpayment was made until the date HMRC processes the refund. It is taxable income of the estate, reportable on the trust and estate tax return (SA900) if the estate is still being administered.
This asymmetry — HMRC charges interest at base rate + 2.5% but pays only base rate − 1% — makes it important not to deliberately over-pay IHT in the hope of earning income. The repayment interest rate is always significantly lower than the late payment rate.
Interest on IHT attributable to gifts
Where IHT arises on gifts made within 7 years of death (failed PETs), the IHT attributable to those gifts is also subject to interest from the due date. However, the primary liability for this IHT falls on the recipient of the gift — not the estate. If the recipient fails to pay, HMRC can recover from the estate (subject to the executor’s right of reimbursement), but interest continues to run in the meantime. Executors should contact gift recipients early to arrange payment and avoid estate interest building up on their account.
Summary: key interest rules at a glance
| Situation | Interest treatment |
|---|---|
| IHT paid on time (by 6-month due date) | No interest charged |
| IHT paid late (non-instalment assets) | Interest at BoE base + 2.5% per annum, daily, from due date |
| Payment on account made before due date | Interest stops on the amount paid from the date of payment |
| Instalment election (qualifying assets) | Interest runs on each instalment from when that instalment is due, not from the original due date |
| IHT on gifts (failed PETs) | Interest runs from the original 6-month due date; recipient is primarily liable |
| Overpaid IHT refunded by HMRC | HMRC pays repayment interest at BoE base − 1% per annum |
Frequently asked questions
When does HMRC start charging interest on inheritance tax?
HMRC starts charging interest on unpaid inheritance tax from the day after the tax was due. For most estates, IHT is due six months after the end of the month in which the person died. So if a person dies on 15 March 2026, the IHT due date is 30 September 2026. If the tax is not paid by that date, interest begins accruing from 1 October 2026. The tax itself can often not be paid until probate is granted (because the estate assets are frozen), but interest runs regardless — which is why executors often make a payment on account before probate using cash from the deceased's bank account or a personal loan, in order to stop the interest clock.
What is the current HMRC interest rate on unpaid inheritance tax?
HMRC charges late payment interest on unpaid IHT at the Bank of England base rate plus 2.5 percentage points. The rate is reviewed when the Bank of England changes the base rate. As of early 2026, with the Bank of England base rate at approximately 4.25%, the HMRC late payment interest rate on IHT is approximately 6.75% per annum. Interest accrues daily on the outstanding balance. For overpaid IHT (where HMRC owes a repayment), HMRC pays repayment interest at the Bank of England base rate minus 1 percentage point — currently approximately 3.25% per annum. Repayment interest is taxable income for the estate.
Can interest on inheritance tax be avoided?
Interest can be avoided entirely by paying the IHT on or before the due date — six months after the end of the month of death. In practice, many estates cannot pay in time because probate is not yet granted and the estate assets are frozen. The main strategies to avoid or minimise interest are: (1) Payment on account — the executor (or a beneficiary or family member) pays HMRC an estimated amount before probate is granted. HMRC accepts such payments and stops charging interest on the amount paid. The IHT reference number must be obtained first (apply on form IHT422). (2) Using the deceased's bank accounts — some banks allow funds to be released to pay IHT before probate, particularly if the bank has a bereavement procedure. The executor should request this early. (3) Instalment elections for qualifying assets — if the estate includes property, business assets, or certain shares, electing to pay IHT in 10 annual instalments stops interest accruing on those instalments (provided each instalment is paid on time). However, interest still accrues on any non-instalment IHT from the due date.
How does the instalment option interact with interest on inheritance tax?
If an executor elects to pay IHT in instalments on qualifying assets (broadly, land, certain shares, and business or agricultural property), interest is charged on each instalment only from the date that instalment was due — not from the original 6-month due date of the overall IHT liability. This is a significant advantage: instead of all the interest running from the original due date, each instalment has its own interest clock that starts when that instalment falls due. However, the election must be made on the IHT400 (or IHT400 Calculation), and the qualifying conditions must be met. If a qualifying asset is sold before all instalments have been paid, the outstanding IHT becomes immediately payable — and interest runs from the date the instalment was originally due, not the sale date.
Does interest on inheritance tax qualify for a tax deduction?
No — interest paid on late IHT is not deductible against the estate's income tax or capital gains tax, nor does it reduce the IHT liability itself. It is simply an additional cost of the estate administration. This makes it particularly important for executors to act promptly to pay IHT on time or make a payment on account, because there is no tax relief for the interest cost. Repayment interest received from HMRC (when the estate has overpaid IHT) is also not eligible for deduction — it is treated as income of the estate and may be subject to income tax.
What is a payment on account for inheritance tax?
A payment on account is a payment made to HMRC before the full IHT liability is finally determined — typically before probate is granted. It is particularly useful when the executor knows the estate is large enough to attract IHT but cannot yet pay the full amount because the estate assets are frozen pending probate. To make a payment on account: (1) Apply for an IHT reference number using form IHT422 (or online via HMRC's service) as soon as possible after the death. (2) Calculate an estimate of the IHT due, erring on the side of over-payment rather than under-payment to protect against further interest. (3) Pay the estimated amount to HMRC using the IHT reference number. The payment is credited against the final IHT liability. If the payment is more than needed (after a later valuation reduces the estate), HMRC refunds the overpayment with repayment interest. If the payment is less than needed, interest runs on the shortfall from the due date — but not on the amount already paid.
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