Paying Inheritance Tax by Instalments
Inheritance tax is normally due six months after the end of the month in which someone dies. For an estate built on a house, a farm or a family business, raising that cash in six months can mean a forced sale. The instalment option exists to prevent exactly that: inheritance tax on qualifying assets can be spread over 10 annual instalments, and from April 2026 some of it is interest-free.
When Inheritance Tax Is Normally Due
The general rule is that inheritance tax is payable by the sixth month after the end of the month of death. A death on 10 January means the tax is due by 31 July. Interest runs on any amount paid late.
For straightforward estates, the tax is paid when the inheritance tax account (form IHT400) is submitted, normally before probate is obtained. Our guide to how to pay inheritance tax covers the ordinary payment process.
Which Assets Qualify for Instalments
The instalment option applies to inheritance tax on the following types of asset:
- Land and buildings of any kind
- An interest in a business, such as a partnership interest
- Shares in an unquoted company
- Qualifying agricultural property
- Certain other assets where HMRC accepts the value cannot be raised without selling the asset
The key point is that the instalment option attaches to the tax on the qualifying asset itself, not to the whole tax bill. An estate made up of a £1 million house and £500,000 of cash can pay the tax on the house in instalments, but the tax on the cash is due in full at the normal time.
How the 10-Year Instalment Route Works
When you elect to pay by instalments:
- The tax is split into 10 annual instalments
- The first instalment is due six months after the end of the month of death
- The remaining instalments fall due on each anniversary
- Interest is charged on the outstanding balance from the original due date, and the instalments include interest
For most qualifying assets, interest runs on the unpaid tax. Two exceptions exist:
Interest-Free Instalments for Agricultural and Business Assets
Tax on an interest in a business, and on qualifying shares in unquoted companies, has historically been interest-free for the first year. From 6 April 2026, the interest-free instalment option was extended to all assets qualifying for Agricultural Property Relief and Business Property Relief. For a farm or a trading company, this means the 10-year route carries no interest charge at all on the qualifying assets, which is a meaningful saving on top of the cash-flow benefit.
The Land and Buildings Position
Tax on land and buildings can also be paid over 10 years, but interest is charged on the outstanding balance from the original due date. The benefit of instalments for property is purely the cash-flow relief, not the interest saving.
When the Balance Becomes Due Immediately
The instalment route has a catch: the outstanding tax becomes due in full if the asset is sold during the instalment period. If the family sells the farm or the inherited house before the 10 years are up, the remaining instalments fall due at once.
The rule is designed to protect the position where the asset is genuinely illiquid. The moment it produces cash, HMRC expects its tax. Selling one qualifying asset to pay the tax on another does not help: the sale crystallises the balance on the asset sold.
A Worked Example
An estate consists of a house worth £700,000 and a farm worth £2 million, with no debts and a full residence nil-rate band available. The inheritance tax is calculated on the excess above the nil-rate band and residence nil-rate band, after applying agricultural relief. On the qualifying farm assets, the tax can be paid in 10 annual, interest-free instalments; on the house, the tax can also be spread over 10 years, but interest runs on the outstanding balance from the normal due date.
The practical effect is that the family can keep the farm operating while paying the tax gradually, rather than selling land in the first year.
Making the Election
The election to pay by instalments is made in the inheritance tax account (form IHT400). It is available automatically where the assets qualify, and it does not need to be justified to HMRC beyond the asset types involved. Executors who want to pay early can do so; the instalment option is not compulsory, and the full balance can be paid at any time.
How Instalments Fit With the Rest of the Estate
The instalment option is one of several practical questions that arise after death. It interacts with:
- The inheritance tax return and probate process
- The payment deadlines covered in how to pay inheritance tax
- Business and agricultural relief, since the interest-free route only applies to qualifying assets (see our guides to Agricultural Property Relief and passing on a family business)