Inheritance tax: administration and payment, including the instalment option: formula sheet

Key formulas

Tax due date: death

6 months after the end of the month of death

Interest runs from this date if tax is unpaid. Use the interest rate stated in the question.

IHT400 filing deadline

The later of 12 months after the end of the month of death and 3 months after the PRs first begin to act

In practice the account is usually needed sooner. HMRC normally wants the IHT400 filed and the tax paid before it will issue a grant of probate. That is not an earlier legal deadline.

CLT tax due date

Transfer 6 April to 30 September: 30 April in the next tax year. Transfer 1 October to 5 April: 6 months after the end of the month of transfer

This is the tax due date for lifetime tax. Extra tax on a CLT because of death within seven years is due 6 months after the end of the month of death.

IHT100 filing deadline

12 months after the end of the month of the CLT

The return is made by the transferor, or by the trustees.

Quoted shares valuation

Lower of (1) lower quoted price + ¼ × (higher − lower) and (2) midpoint of the highest and lowest marked bargains

Quoted share prices are usually given in pence. Convert to pounds.

Open market value

Price the asset might reasonably be expected to fetch if sold on the open market at the date

Related property rules can increase the value of a holding.

Excepted estate (low value)

Gross estate below the nil rate band(s) available, including any transferable nil rate band (the nil rate band is £325,000 for one person)

There are further conditions, such as limits on lifetime gifts, UK domicile and foreign assets. Other excepted estates exist, such as those where only exemptions remove the tax. Read the facts carefully.

Due date: lifetime chargeable transfer (April to September)

Later of 30 April after the end of the tax year of transfer and 6 months after the end of the month of transfer. For a transfer made 6 April to 30 September this is 30 April in the next tax year

For example, a CLT on 10 June 2025 has tax due on 30 April 2026.

Due date: lifetime chargeable transfer (October to April)

Transfer made 1 October to 5 April: tax due 6 months after the end of the month of transfer (this is the later date)

For example, a CLT on 15 November 2025 has tax due on 31 May 2026. A CLT on 10 March 2026 has tax due on 30 September 2026.

Due date: tax on death

Tax due 6 months after the end of the month of death

Applies to the death estate, to tax on a failed PET and to additional tax on a CLT made within seven years of death.

Liability: lifetime CLT

Donor and trustees are both primarily liable for the lifetime tax (trustees often pay by agreement)

If the donor pays, gross up the excess over the nil rate band at 20/80. If the trustees pay, no gross up. The lifetime rate is 20% on the excess over the nil rate band of £325,000.

Liability: failed PET and additional tax on CLT

Failed PET: donee primarily liable; personal representatives secondarily liable, only to the extent the tax is unpaid after the donee fails to pay (the donor's estate then bears it). Additional tax on CLT: trustees primarily liable; personal representatives secondarily liable, only to the extent the trustees do not pay

Death rate is 40% on the excess over the nil rate band, reduced by taper relief where the gift was made more than three years before death.

Primary liability: death estate

Personal representatives

Secondary liability can fall on those who receive the property.

Taper relief percentages

3–4 years 20%, 4–5 years 40%, 5–6 years 60%, 6–7 years 80%

The relief reduces the tax and not the value of the transfer. Use the tax table provided in the exam.

Number of instalments

Ten equal annual instalments

The first instalment falls on the normal due date. Later ones fall each year on that date.

Tax attributable to the qualifying asset

Total IHT × (Value of qualifying asset after reliefs ÷ Value of total chargeable estate or transfer after reliefs)

Apply the fraction to the total tax. Use values after any reliefs and exemptions that apply.

Annual instalment

Tax on qualifying asset ÷ 10

Round only at the end.

Interest on outstanding tax (where charged)

Outstanding tax × rate given in the question × time in years

Use the rate the question gives, as the tax tables give no separate instalment rate. Apply it to all the tax still unpaid just before the instalment is paid, including that instalment, for the period since the previous payment date. At the second instalment date this is the tax on the asset less the first instalment.

Effect of sale

Remaining instalments become due immediately on sale

Applies to the tax on the asset sold.

Death rate and nil rate band

40% on the excess over £325,000 (death); 20% lifetime

The residence nil rate band of £175,000 may also apply on death if the conditions are met.

Interest on late IHT

Tax unpaid × 8.50% × months late ÷ 12

Runs from the due date to the payment date. The 8.50% rate is the assumed rate for underpaid tax in the tax tables.

Interest on overpaid IHT

Tax repaid × 3.50% × months ÷ 12

Runs from the date the tax was paid to the date of repayment. The 3.50% rate is the assumed rate for overpaid tax.

Standard error penalty

Extra tax due × penalty percentage

Careless: maximum 30%, minimum 0% unprompted, 15% prompted. Deliberate but not concealed: maximum 70%, minimum 20% unprompted, 35% prompted. Deliberate and concealed: maximum 100%, minimum 30% unprompted, 50% prompted.

Share loss relief

Relief = probate value − sale proceeds (net across all qualifying sales within 12 months of death)

Claimed by the person liable for the tax on the estate. Restricted if sale proceeds are reinvested in qualifying investments within two months of the last qualifying sale.

Land loss relief

Relief = probate value − sale price (net across all sales within four years of death)

No relief if the total fall is less than the lower of £1,000 and 5% of the total probate value. Restricted if proceeds are reinvested in land within the permitted period.

Tax saved by a loss claim

Relief × 40%

Use 40% where the reduction falls wholly above the nil rate band. Check how the nil rate band and residence nil rate band are used.

IHT rate on death

Death tax = 40% × (chargeable estate − available nil rate bands)

Nil rate band is £325,000 and residence nil rate band is £175,000 (if available). Both are in the tax tables. Charity-rate conditions, if tested, are not covered here.

Lifetime rate

Lifetime tax on a chargeable transfer = 20% × excess over nil rate band

Lifetime rate is 20%. If the donor dies within seven years, the tax on the transfer is recalculated at the 40% death rate. Taper relief in the tables then reduces that tax. Lifetime tax already paid is credited, but it cannot create a refund.

Taper relief

Reduction in tax: 3-4 years 20%; 4-5 years 40%; 5-6 years 60%; 6-7 years 80%

Taper relief reduces the tax, not the value transferred. It applies only where the transfer exceeds the nil rate band, and it reduces the death tax computed at 40%. Then deduct lifetime tax paid. If lifetime tax was higher, there is no refund.

Due date for tax on death

Six months after the end of the month of death

State the general rule. Interest runs on late tax. The official underpaid rate in the tables is 8.50%.

Base cost on death

CGT base cost of inherited assets = market value at date of death

Gains between death and sale are taxable. CGT rates are 18% and 24%, with annual exempt amount £3,000. Personal representatives have the annual exempt amount only for the tax year of death and the next two tax years.

Interest on tax

Underpaid tax 8.50%; overpaid tax 3.50%

Use the tables supplied. These are the assumed rates.

Quick revision

• Learn the due date for each case: death estate, lifetime transfers and additional tax on death after a lifetime transfer.
• Know who is primarily liable: personal representatives for the death estate, the donor or the donee for lifetime transfers.
• The instalment option is ten equal annual instalments, with the first due on the normal due date.
• Only certain assets qualify for instalments, such as land and buildings and certain business interests and shares. Learn the list.
• If an asset on which instalments are paid is sold, the outstanding tax usually becomes payable.
• Interest on underpaid tax is 8.50% and on overpaid tax is 3.50% in the tax tables.
• Error penalty maximums are 100% (deliberate and concealed), 70% (deliberate, not concealed) and 30% (careless).
• Minimum penalties depend on whether disclosure is unprompted or prompted. Use the table.
• Lifetime tax rate is 20% and death rate is 40% on the excess over the nil rate band of £325,000.
• Taper relief reduces tax only on transfers made more than three years before death.
• Where a client lacks cash, consider the instalment option, life assurance and use of the residence nil rate band planning.
• Always give advice that fits the client's facts and state the next practical step.

Common mistakes

• Counting the 6 or 12 months from the date of death instead of from the end of the month of death. Fix: Write the month end first, then add the months.
• Saying an IHT400 is always required on death. Fix: Compare the gross value with the nil rate band(s) available, including any transferable nil rate band. Check for exemptions, foreign assets and lifetime gifts before answering.
• Using six months after the date of the gift for a lifetime transfer made between April and September. Fix: Remember the rule is the later of 30 April after the tax year end and six months after the end of the month of transfer. A CLT made from 6 April to 30 September is due on 30 April of the following year.
• Counting six months from the date of death rather than from the end of the month of death. Fix: Always write the month end first. A death on 12 March is followed by month end 31 March, and the due date is 30 September.
• Offering instalments on all of the tax. Fix: Split the total tax by asset value first, and only spread the qualifying part.
• Charging interest on the original tax every year. Fix: Apply interest to the outstanding tax, which reduces after each instalment is paid.
• Using the overpaid rate of 3.50% on tax paid late. Fix: Late payment to HMRC uses 8.50%. Money coming back from HMRC uses 3.50%.
• Starting interest from the date of death. Fix: Late payment interest starts at the due date, six months after the end of the month of death.
• Saying executors can always pay IHT from the estate before probate. Fix: Mention that estate funds may not be accessible and explain the Direct Payment Scheme and borrowing as ways to pay on time.
• Using the original cost as the CGT base cost for assets sold after death. Fix: Use market value at death (probate value). Only the gain after death is taxable.

Exam tips

• Write each date as a month end first, then add the months. Show this on the page so you earn marks even if you slip on arithmetic.
• If a question asks who must file, name both the person and the form. IHT400 goes with PRs on death. IHT100 goes with a CLT.
• For quoted shares, always show both calculations. The marker is looking for the choice of the lower figure.
• In an advice question, mention PRs' personal liability and excepted estates. Link them to the scenario, such as foreign assets or a trust.
• Professional skills marks reward a clear, ordered answer. Use short headings in your answer to match each part of the requirement.
• Write the due date in full as a calendar date. Examiners award a mark for the date and a mark for the reasoning.
• Always state primary and secondary liability when the question says who is liable. One name alone usually loses marks.
• Use the tax table in the exam for the nil rate band, the rates and the taper relief bands. Do not rely on memory for percentages.