ACCA Strategic Professional · Advanced Taxation (UK)

Inheritance Tax Administration, Payment and the Instalment Option

This chapter covers how inheritance tax is reported, who must pay it, when it falls due and how it can be paid. For death and lifetime transfers, you fix the due date, name the liable person, check whether the instalment option applies, then add interest and penalties if payment or reporting is wrong.

What this chapter covers

Earlier IHT chapters teach you to calculate the tax. This chapter covers what happens next: who reports the transfer, who pays, by when, and whether the payment can be spread over time. In ATX-UK these points often turn a calculation into advice for a client or executor.

The core rules are the due dates, the person primarily liable, and the instalment option (ten equal annual instalments for qualifying assets). You also need interest on late tax, penalties for errors, and how to reclaim overpaid tax. The tax tables give the rates you need, such as 8.50% on underpaid tax, 3.50% on overpaid tax and the error penalty ranges. They do not give due dates or the instalment rules, so you must learn those.

This chapter links to lifetime transfers, death estates, reliefs such as business property relief, trusts and tax planning. Section A cases often ask for a client's cash-flow problem after death, and Section B questions often ask for advice on funding and timing. Professional skills marks come from applying the rules to the client's facts, not from listing them.

Payment and administration points are easy marks if you have learned the rules, because they are rule-based and do not depend on long calculations. They also appear as a short add-on to larger IHT requirements, such as stating who pays and when, or advising on the instalment option for a family company or let property. Candidates who stop at the tax figure miss these marks, and the professional skills marks reward practical advice on cash flow and funding.

Inheritance tax: administration and payment, including the instalment option: topics in the order to study them

1Due Dates and Liability for Payment of IHTStart with when tax is due and who pays, because every other topic builds on these dates and people.
2IHT Administration: Returns, Accounts and ValuationNext, learn what must be reported and how assets are valued, since this decides the tax and the penalty risk.
3Instalment Option for Paying IHTOnce you know the normal due date, you can learn how qualifying assets let the tax be paid over ten years.
4Interest, Penalties and Reclaiming Overpaid IHTThen see the cost of paying late or getting it wrong, using the interest rates and penalty table, and how overpaid tax is recovered.
5Funding IHT and Planning for PaymentFinish with advice, where you combine all the earlier rules to solve a client's cash-flow problem.

How to prepare Inheritance tax: administration and payment, including the instalment option

Treat this chapter as a set of rules you apply to facts. Learn the rules cold, then practise applying them to short scenarios.

Build a one-page timeline of due dates for lifetime transfers, additional tax on death and the death estate, and learn the person liable in each case.
List what the return and account must cover and how the main assets are valued, noting which valuation points can lead to a reclaim of tax.
Learn the instalment option: the ten equal annual instalments, which assets qualify, and what happens if the asset is sold. Check your notes for when interest runs on instalments.
Open the ACCA tax tables and find the interest rates and the error penalty table. Practise using the table, for example matching careless behaviour to its range of penalties.
Write short answers for scenarios in which a family needs cash to pay IHT, covering the due date, the person liable, the instalment option, and funding choices.
Do past Section A and Section B questions and mark yourself on application and advice, not only on figures.

Common mistakes in Inheritance tax: administration and payment, including the instalment option

Giving one due date for all IHT.
Fix: Use a timeline that separates lifetime transfers (which depend on the date in the tax year), additional tax on death, and the death estate.
Naming the wrong person as liable.
Fix: For each transfer, ask: lifetime or death, and who holds the property. Then state the primary liable person and who is liable if they do not pay.
Saying the instalment option applies to any asset.
Fix: Check that the asset is a qualifying type, then state the ten equal annual instalments and the effect of a later sale.
Quoting interest or penalty rates from memory.
Fix: Use the rates in the tax tables: 8.50% underpaid, 3.50% overpaid, and the penalty table by behaviour and disclosure.
Stopping at the calculation and giving no advice.
Fix: Add practical advice on funding, timing and next steps, tailored to the facts, to earn professional skills marks.
Applying taper relief to the tax on all transfers.
Fix: Use taper relief only on transfers made more than three years before death that give rise to tax, using the percentages in the table.

Last-day revision: Inheritance tax: administration and payment, including the instalment option

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.

Inheritance tax: administration and payment, including the instalment option practice questions

Inheritance tax: administration and payment, including the instalment option in other exams

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

Inheritance tax: administration and payment, including the instalment option: frequently asked questions

What is the instalment option for IHT?

It lets tax on certain assets be paid in ten equal annual instalments instead of one lump sum. The first instalment is due on the normal due date. It is aimed at assets such as land and buildings and certain business interests that cannot easily be sold to raise cash.

What interest rate applies to unpaid IHT in ATX-UK?

The tax tables give 8.50% as the rate of interest on underpaid tax and 3.50% on overpaid tax. Interest on late IHT runs from the due date. Use the table figures, not a rate from memory.

Who pays IHT on a death estate?

The personal representatives are primarily responsible for the tax on the death estate. Tax on earlier lifetime gifts that becomes payable because of the death is normally the responsibility of the person who received the gift.

Are IHT due dates given in the ATX-UK tax tables?

No. The tax tables give rates, bands, interest and penalties, but not due dates or the instalment conditions. You need to learn those rules for the exam.

How are penalties for IHT errors worked out?

The penalty depends on the taxpayer's behaviour: careless, deliberate but not concealed, or deliberate and concealed. It also depends on whether disclosure was unprompted or prompted. The tax tables show the maximum and minimum for each case.