Advanced Taxation (UK) · Inheritance tax: administration and payment, including the instalment option

Interest, Penalties and Reclaiming Overpaid IHT for ACCA ATX-UK

Updated 11 October 2026 · Fact-checked

Interest runs on IHT paid after the due date at the underpaid rate (8.50% assumed) and on IHT repaid at the overpaid rate (3.50%). Penalties for errors depend on behaviour and disclosure. If the estate sells shares within 12 months or land within four years at a loss, claim loss-on-sale relief to cut the IHT.

Understand Interest, Penalties and Reclaiming Overpaid IHT

IHT has a due date. For a death estate, tax is normally due six months after the end of the month of death. If tax is paid after that date, HMRC charges interest from the due date to the date of payment. You do not need a notice for this. Interest runs automatically.

The ATX-UK tax tables give assumed rates: 8.50% on underpaid tax and 3.50% on overpaid tax. The gap matters. Late payment costs you more than early overpayment earns. Use the rate that matches the direction of the payment.

Penalties are a separate issue. They apply where a return or account contains an error that leads to too little tax. The penalty is a percentage of the extra tax due. The percentage depends on behaviour: careless, deliberate but not concealed, or deliberate and concealed. It then falls if the person tells HMRC voluntarily, and falls further if the disclosure is unprompted. The tables give the maximum and minimum percentages. Late filing of an account can also carry its own penalties, but you work from the figures the exam gives you.

The estate is valued at probate value. Prices can fall after death, and the executors may have to sell. Two reliefs let the tax be recalculated on the lower sale price. Share loss relief applies to qualifying investments sold within 12 months of death. Land loss relief applies to land sold within four years of death. The claim cuts the value of the death estate, so tax is repaid. The repayment carries interest at the overpaid rate from the date the tax was paid.

Key rules to remember

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.

How to solve Interest, Penalties and Reclaiming Overpaid IHT questions

Use this order for any question on IHT interest, penalties or loss relief.

1Identify the task: interest on late tax, interest on a repayment, a penalty, or a loss-on-sale claim.
2Fix the key dates: date of death, due date (six months after the end of the month of death), date of payment, date of sale.
3For interest, pick the rate: 8.50% if tax was paid late, 3.50% if tax is repaid. Count months to the nearest month.
4For a penalty, classify the behaviour, then decide whether disclosure was prompted or unprompted. Apply the range from the tax table to the extra tax due.
5For a loss claim, check the time limit (12 months for shares, four years for land) and who sold. Net all qualifying sales together and check the de minimis rule for land.
6Compute the relief as probate value less proceeds, then multiply by 40% to find the tax repaid. Test whether the nil rate band means a lower rate applies.
7Add interest on the repayment at 3.50% if the question asks for it.
8State any CGT effect briefly and give a conclusion in the form the requirement asks for.

Quickest way: Rate, months, percentage

When to use it: Use this when the question asks for a figure and gives you dates and amounts.

Write down the due date and payment date and count the months.
Underpaid tax: tax × 8.50% × months ÷ 12. Overpaid tax: tax × 3.50% × months ÷ 12.
Penalty: extra tax × the percentage from the behaviour and disclosure cell.
Loss claim: (probate value − proceeds) × 40%. Check the time limit and the land de minimis rule first.

Common mistakes in Interest, Penalties and Reclaiming Overpaid IHT

Using the overpaid rate of 3.50% on tax paid late.
Students remember one rate and apply it everywhere.
Fix: Late payment to HMRC uses 8.50%. Money coming back from HMRC uses 3.50%.
Starting interest from the date of death.
Students confuse the date of death with the due date.
Fix: Late payment interest starts at the due date, six months after the end of the month of death.
Applying the penalty percentage to the whole tax bill.
The word penalty suggests the total tax is the base.
Fix: Apply it only to the extra tax caused by the error.
Picking the wrong penalty cell, such as using the maximum when the question says the error was disclosed unprompted.
Students stop at the behaviour category and skip the disclosure column.
Fix: Classify the behaviour first, then read the disclosure column. Say whether you are giving a range or a figure.
Claiming share loss relief for sales after 12 months, or land loss relief after four years.
The two time limits are mixed up.
Fix: Write 12 months next to shares and four years next to land before you start.
Offsetting a gain on one sale only against the loss on another within the wrong asset class, or claiming relief on each loss separately.
Students treat each disposal as a separate claim.
Fix: Net all qualifying sales of the same type together. Gains reduce the relief.

Worked examples

Example 1

Anil died on 10 March 2026. IHT of £40,000 on his death estate was paid on 30 November 2026. Calculate the interest on late payment using the assumed rates in the tax tables.

Show the solution

The tax was due six months after the end of March 2026, which is 30 September 2026.
Payment was made on 30 November 2026, so it was 2 months late.
Underpaid tax rate is 8.50%.
Interest = £40,000 × 8.50% × 2 ÷ 12 = £566.67.
Round to the nearest £ as the supplementary instructions require: £567.

Answer: Interest on the late payment is £567.

Example 2

Meera died owning land with a probate value of £400,000. The executors paid £90,000 of IHT on the death estate at the due date. They sold the land 30 months after death for £340,000. The land was the only property sold. Assume the whole £60,000 reduction falls in the 40% band. Calculate the IHT repaid and the interest on the repayment if it is made 6 months after the claim date and interest runs for 6 months at 3.50%.

Show the solution

The sale is within four years of death, so land loss relief is available.
Fall in value = £400,000 − £340,000 = £60,000.
De minimis test: the lower of £1,000 and 5% × £400,000 (£20,000) is £1,000. The fall of £60,000 exceeds this, so relief is due.
Value of the death estate is reduced by £60,000.
IHT repaid = £60,000 × 40% = £24,000.
Interest on the overpayment = £24,000 × 3.50% × 6 ÷ 12 = £420.

Answer: IHT repaid is £24,000, with interest of £420 at the overpaid rate.

Exam tips

Write the rate and the number of months on the page before you multiply. Method marks depend on it.
Learn the three behaviour categories and the two disclosure columns. Use the table, and quote the range if the facts do not point to one figure.
For a loss claim, state the time limit, who can claim, and the de minimis rule for land. Then calculate.
Link the claim to the estate's CGT position. A claim that reduces the value for IHT affects the CGT base cost.
If the scenario involves an error, add a short professional skills point. Advise on voluntary disclosure and what the client should do next.

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

Interest, Penalties and Reclaiming Overpaid IHT: frequently asked questions

What interest rate does ACCA give for late IHT payment?

The ATX-UK tax tables give an assumed rate of 8.50% on underpaid tax. Interest runs from the due date to the date of payment.

What interest applies when HMRC repays IHT?

The assumed rate on overpaid tax is 3.50%. It runs from the date the tax was paid to the date of repayment.

How much is the penalty for a careless error on an IHT return?

The maximum penalty for a careless error is 30% of the extra tax. The minimum is 0% if disclosure is unprompted and 15% if it is prompted.

How do I claim relief if shares fall in value after death?

If the executors sell qualifying shares within 12 months of death for less than the probate value, they can claim to use the sale proceeds instead. The death estate value falls and tax is repaid. The claim is restricted if the proceeds are reinvested in qualifying investments within two months of the last sale.

Can I claim relief for a sale of land within four years of death?

Yes. If land is sold within four years of death for less than its probate value, the sale price replaces the probate value. There is no relief if the fall is less than the lower of £1,000 and 5% of the probate value.