Welcome to DLS Solicitors, where we provide expert legal guidance tailored to your needs. Understanding Inheritance Tax (IHT) can often seem daunting, and we’re here to help clarify your options, particularly when it comes to managing payments. One common question we encounter concerns the ability to pay Inheritance Tax in instalments. In this comprehensive guide, we will explore this option in detail to assist you in planning your estate or handling the estate of a loved one.
Understanding Inheritance Tax
Inheritance Tax in the UK is a tax on the estate (the property, money, and possessions) of someone who’s passed away. There’s normally no Inheritance Tax to pay if either the value of your estate is below the £325,000 threshold or you leave everything above the threshold to your spouse, civil partner, a charity, or a community amateur sports club. The standard Inheritance Tax rate is 40% on anything above the threshold.
Eligibility for Paying Inheritance Tax in Instalments
The UK’s tax legislation does provide the option to pay Inheritance Tax in instalments over a period of time. This is particularly useful for estates that consist largely of illiquid assets, such as property or certain types of shares, which may not be easily sold or converted into cash.
It’s important to note that not all assets are eligible for instalment payment plans. Generally, the option is available for:
- Land or buildings
- Shares or securities that give the deceased control of a company
- Unquoted shares held for more than two years before death
- Certain types of business property that may qualify for relief
It is advisable to consult with a professional to understand the specific eligibility criteria for your situation.
How to Arrange Payment in Instalments
To pay Inheritance Tax in instalments, you’ll need to inform HM Revenue and Customs (HMRC) when submitting the IHT return. The option to pay in instalments is selected on the IHT400 form, and specific details regarding the assets for which you are seeking to pay by instalments should be provided.
Initial payments are due at the end of the sixth month after the person died. For example, if the person died in January, the first payment is due by the end of July. Interest will be charged on the unpaid balance but allows the estate to avoid immediate full payment.
Managing Instalment Payments
While paying in instalments can ease the financial burden on an estate, it’s critical to manage these payments effectively:
- Keep track of payment deadlines to avoid unnecessary interest or penalties.
- Consider paying off the balance sooner if the estate acquires sufficient liquidity, as this can save on interest costs.
- Stay in communication with HMRC, especially if there are any changes in the estate’s financial situation or if you’re having difficulty meeting payment terms.
Conclusion
Paying Inheritance Tax in instalments can offer significant relief for estates that are asset-rich but cash-poor. However, navigating the complexities of IHT can be challenging without professional assistance. At DLS Solicitors, we specialise in providing clear, practical legal advice to help you make the best decisions for your estate or when handling an estate on behalf of a loved one.
If you have further questions about Inheritance Tax or any other estate planning concerns, please don’t hesitate to get in touch. Our team of experienced solicitors is here to support you every step of the way.
