Taxation (UK) · Payment of inheritance tax

Payment by Instalments for Inheritance Tax (IHT)

Updated 11 October 2026 · Fact-checked

Some inheritance tax can be paid in ten equal annual instalments instead of in one sum. The option covers qualifying assets such as land, buildings, controlling shareholdings and certain unquoted shares or businesses. Work out the tax on those assets, divide by ten, and start on the normal due date. Interest depends on the asset type.

Understand Payment by Instalments

Inheritance tax (IHT) is normally due in one sum. That can cause cash problems. An estate may hold a house or a family company but little cash. The instalment option exists so the personal representatives or the donee do not have to sell the asset just to pay the tax.

The option applies only to qualifying assets. Broadly these are land and buildings, shares or securities that give the holder control of a company, certain unquoted shares and unquoted businesses (including partnership interests). Unquoted shares that do not give control only qualify if further conditions are met, for example the tax being hard to pay in one sum. Quoted minority shareholdings and cash do not qualify. Check the exact conditions in your study text.

The tax is paid in ten equal annual instalments. The first is due on the normal due date. For a death, that is six months after the end of the month of death. The later nine fall on each following anniversary. Only the tax attributable to the qualifying asset can be spread. Tax on other assets is due in full on the normal date. On a lifetime gift, the option is also available where the donee pays the tax, and on a failed PET.

Interest is the second key point. Some assets get interest-free instalments, and others carry interest on the unpaid tax from the normal due date. Which applies depends on the asset type, so learn the split from your study text. Late payment of any instalment attracts interest at the underpaid-tax rate. In the ACCA tax tables, the assumed rate on underpaid tax is 8.50%.

If the asset is sold, the remaining instalments usually become due straight away. You must be able to say this in an exam.

Key rules to remember

Tax on qualifying asset: Total IHT × (Value of qualifying asset ÷ Total chargeable value); Use this when the nil rate band is shared across the whole estate. Only this part of the tax can be paid by instalments.
Annual instalment: Tax on qualifying asset ÷ 10; Ten equal annual instalments. The first falls on the normal due date.
Due date on death: Six months after the end of the month of death; This is the date of the first instalment. Later ones fall on each anniversary.
IHT rates used: Nil rate band £325,000; death rate 40%; lifetime rate 20%; From the ACCA tax tables. The residence nil rate band is £175,000 where it applies.
Sale of the asset: Unpaid instalments become due immediately; This applies on a sale of the asset. Interest rules depend on the asset type.

How to solve Payment by Instalments questions

Use this method for any question on paying IHT by instalments.

1Calculate the total IHT first, using the nil rate band, any residence nil rate band, and the correct rate (40% on death, 20% on lifetime).
2Identify which assets qualify: land and buildings, controlling shares, qualifying unquoted shares or businesses. Ignore cash and quoted minority shares.
3Work out the tax attributable to the qualifying assets: total tax × qualifying value ÷ total chargeable value.
4Divide that tax by ten to get the annual instalment.
5Set out the dates. The first is the normal due date. The next nine are on each anniversary.
6State the balance of tax on non-qualifying assets, which is due in one sum on the normal due date.
7Comment on interest: interest-free or interest-bearing depending on the asset, and interest on late payment.
8Add a note on a sale: unpaid instalments fall due immediately.

Quickest way: Fraction, divide by ten, list dates

When to use it: Use in Section A or B objective questions where you must give an instalment amount or a due date.

Write the total tax in one line.
Multiply by the fraction: qualifying asset ÷ total chargeable estate.
Divide by 10.
Add six months to the end of the month of death for the first date.
Check the question for any sale of the asset, which accelerates payment.

Common mistakes in Payment by Instalments

Spreading the whole IHT bill over ten years.
Students forget that only tax on qualifying assets can be paid by instalments.
Fix: Always apportion the tax to the qualifying asset first. The rest is due on the normal date.
Treating all assets as qualifying.
The word 'shares' sounds like it covers every shareholding.
Fix: Control or specific unquoted conditions are needed. Quoted minority holdings and cash never qualify.
Starting the first instalment a year late.
Students assume the first instalment follows the first anniversary.
Fix: The first instalment is on the normal due date, six months after the end of the month of death. The tenth falls nine years later.
Applying the nil rate band only against the non-qualifying assets.
Students try to use the relief where it helps most.
Fix: Compute the tax on the whole estate, then apportion it by value.
Ignoring a sale of the asset.
Students forget the instalments are linked to owning the asset.
Fix: If the asset is sold, outstanding instalments are due immediately. Say this explicitly.
Saying all instalments are interest-free.
The option is often described as a relief, so students assume no interest.
Fix: Interest depends on the asset type. Learn the split, and note that late payment always carries interest.

Worked examples

Example 1

Anna died on 15 March 2026. Her chargeable estate was £925,000, including freehold land worth £370,000. No residence nil rate band is available, and she made no lifetime gifts. Calculate the IHT payable on the land by instalments, and state the first and last instalment dates. Assume the land qualifies for interest-free instalments.

Show the solution

Taxable amount: £925,000 − £325,000 nil rate band = £600,000.
IHT at 40% = £240,000.
Tax on land = £240,000 × £370,000 ÷ £925,000 = £96,000.
Annual instalment = £96,000 ÷ 10 = £9,600.
Normal due date: six months after end of March 2026 = 30 September 2026. This is the first instalment date.
Last instalment: nine years later, 30 September 2035.
Tax on the other assets: £240,000 − £96,000 = £144,000, due on 30 September 2026.

Answer: Ten instalments of £9,600, from 30 September 2026 to 30 September 2035. The other £144,000 is due on 30 September 2026.

Example 2

Using the facts in the previous example, the executors sell the land after paying four instalments. How much is then payable, and when?

Show the solution

Four instalments have been paid, so six remain.
Remaining tax = 6 × £9,600 = £57,600.
A sale of the asset accelerates payment, so the whole balance is due immediately.

Answer: £57,600 is payable immediately on the sale, not in the original instalments.

Exam tips

Always calculate the full IHT first. Instalment questions are usually short, but the marks sit in the apportionment.
Write the qualifying asset test in one line, such as 'land qualifies' or 'quoted minority shares do not'. This gains easy marks.
In OT questions, check whether the question says the instalments are interest-free. Use the stated assumption.
Learn that the first instalment is on the normal due date and that a sale accelerates the balance. Both are common objective test points.
In written answers, state the interest position in a separate sentence, naming late payment interest at 8.50% only if the tax table is given.

Practice questions from Payment of inheritance tax

Payment by Instalments in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Payment by Instalments: frequently asked questions

Which assets qualify for IHT instalments?

Broadly, land and buildings, shares or securities giving control of a company, and certain unquoted shares and businesses. Unquoted minority shares must meet extra conditions. Cash and quoted minority shareholdings do not qualify.

How many instalments can I pay?

Ten equal annual instalments. The first is due on the normal due date, which on death is six months after the end of the month of death.

What is the difference between interest-free and interest-bearing instalments?

For some assets the tax can be paid by instalments with no interest. For others, interest runs on the unpaid tax. Which applies depends on the type of asset, so learn the split from your study text.

What happens if the asset is sold?

The remaining instalments normally become payable immediately. You should state this clearly in any written answer.