Can Inheritance Tax Be Deferred in the UK? When and How to Delay HMRC’s Bill

For many families inheriting property, businesses, or valuable assets, the biggest worry is not just how much inheritance tax (IHT) will be due, but how to pay it. One of the most common and practical questions we receive at Belgravia Capital Wealth Management is:

“Can inheritance tax be deferred?”

The good news is: yes, in certain circumstances, IHT payments can be deferred — often over several years. This is especially helpful for estates that are asset-rich but cash-poor, such as those involving property, family farms, or private company shares.

In this comprehensive guide, we explain when inheritance tax can be deferred, how HMRC structures repayment, what interest charges apply, and how to plan ahead to avoid unnecessary financial pressure.

What Is Inheritance Tax and When Is It Due?

Inheritance tax is a 40% charge on the value of an estate above the available tax-free allowances:

• £325,000 Nil-Rate Band (NRB)

• £175,000 Residence Nil-Rate Band (RNRB) if a home is passed to direct descendants

For married couples, allowances can be combined - up to £1 million.

IHT is usually due within 6 months of the end of the month of death. If the tax is not paid by then, HMRC begins charging interest on the unpaid amount.

Can Inheritance Tax Be Deferred?

Yes. If the estate includes certain types of illiquid or hard-to-sell assets, HMRC allows the IHT bill to be paid in annual instalments over up to 10 years.

This is particularly useful when:

• The estate consists largely of residential or commercial property

• There are shares in a family business

• The heirs want to retain the asset rather than sell it to pay tax

Which Assets Qualify for Deferred Payment?

HMRC permits IHT to be paid in instalments for the following:

• Land and buildings, including the family home

• Shares and securities in private or unlisted companies

• Farms or agricultural land

• Business property, under qualifying conditions

These are known as qualifying assets. IHT on other liquid assets — such as bank accounts, ISAs, or publicly listed shares — must be paid in full by the deadline.

How the IHT Instalment Option Works

If the estate includes qualifying assets, the executor can apply to pay IHT in 10 equal annual instalments. Here’s how it works:

• The first instalment is due by the usual IHT deadline (6 months after death)

• The remaining nine payments are made annually

• Interest is charged on the outstanding balance from the date the tax was originally due

• If the asset is sold at any point, the remaining balance must be paid immediately

How Much Interest Does HMRC Charge on Deferred IHT?

As of 2025, HMRC charges interest at 7.75% (variable) on unpaid IHT. This rate applies:

• From the end of the 6-month period after death

• On the outstanding IHT balance, even if you’re paying in instalments

This makes deferral a cash flow tool rather than a tax saving — but it can be essential when you don’t want to sell assets in a hurry or at a loss.

Who Can Apply to Defer IHT?

The executor or administrator of the estate must apply to pay IHT by instalments. This is typically done when completing form IHT400, where you’ll:

• Indicate which assets qualify

• Specify that you wish to pay in instalments

• Include appropriate valuations and asset details

HMRC will confirm approval and send a payment schedule.

Example: Deferring IHT on the Family Home

Let’s say you inherit a house worth £900,000, with no mortgage. After using all available allowances, the estate owes £160,000 in IHT. There’s little cash in the estate to pay it.

Rather than sell the property:

• You pay the first £16,000 (10%) within 6 months

• Then pay £16,000 per year for 9 years

• Plus interest on the unpaid balance

If you later sell the property, you must pay off the full remaining balance immediately.

Are There Other Ways to Delay or Mitigate IHT?

Yes. Inheritance Tax deferral should be part of a wider estate planning strategy. Other options include:

1. Gifting Assets During Lifetime

Gifts made more than 7 years before death fall outside the estate for IHT purposes. However, gifts within the 7-year window may still be taxable.

2. Using Business or Agricultural Relief

Business Relief (BR) and Agricultural Relief (AR) can reduce the taxable value of qualifying business or farming assets by 50% or 100%.

These may eliminate the need to pay IHT entirely on those assets.

3. Taking Out a Life Insurance Policy in Trust

A whole-of-life insurance policy placed in trust can cover the IHT bill. This means:

• Beneficiaries receive their full inheritance

• The estate does not need to sell assets to raise cash

4. Using Trusts to Hold Illiquid Assets

Trusts can be structured to manage ownership of property or shares. With careful planning, this can reduce estate value and control IHT exposure over time.

What Happens If You Can’t Pay the IHT On Time?

If IHT is due and unpaid, HMRC may:

• Charge late payment interest

• Apply penalties for failure to submit or pay

• Refuse to grant probate, delaying distribution of the estate

• In extreme cases, pursue asset sales or legal enforcement

It’s vital to seek professional support early to avoid unnecessary financial and legal consequences.

When Should You Consider IHT Deferral?

Consider requesting IHT instalments if:

• The estate includes high-value property or land

• You want to keep assets within the family

• You need time to raise funds or sell other investments

• Selling immediately would result in a poor valuation or tax loss

However, remember that deferral is not a tax reduction - and interest charges may add up significantly over time.

Common Misconceptions About Deferred IHT

• “You don’t have to pay at all.” False. The tax must still be paid in full — deferral only delays payment.

• “Deferral means no interest.” False. HMRC charges interest on unpaid tax, even if approved for instalments.

• “You can defer any part of the estate.” False. Only specific types of assets qualify.

How Belgravia Capital Wealth Management Can Help with Inheritance Tax advice

We help families across the UK:

• Review estate composition and identify eligible assets

• Calculate IHT exposure and explore deferral options

• Complete IHT400 and liaise with HMRC

• Structure gifting, trust, and insurance solutions

• Ensure beneficiaries are not forced into asset sales

We provide a full suite of estate planning and IHT mitigation strategies tailored to your goals and family dynamics.

Conclusion: Can You Defer Inheritance Tax in the UK?

Yes - if the estate includes certain types of illiquid assets, inheritance tax can be paid in instalments over up to 10 years, giving heirs more time and flexibility.

But deferral is not automatic and not interest-free. It’s essential to understand the rules, apply correctly, and consider whether there are better long-term planning options available.

Need help managing or planning around inheritance tax?

Contact Belgravia Capital Wealth Management at contact@belgraviacapital.co.uk for expert advice and personalised support.