Paying inheritance tax in ten yearly instalments: which assets qualify, the 20% test, and a worked £36,000 bill

The executors have a house the family wants to keep, or a farm or a business that must carry on. Inheritance tax is due by the end of the sixth month after the death, and the bank account holds less than the bill. The first question is whether the tax must be found at once. For some assets it need not: it can be paid in yearly instalments. This guide sets out the option as GOV.UK describes it, with the dates worked.

What GOV.UK says

I read the "yearly instalments" and "pay Inheritance Tax" pages on GOV.UK today.

• Length: equal annual instalments over 10 years, so 10 instalments.
• Dates: the first is due at the end of the sixth month after the death, for example 31 July for a death on 12 January. Later instalments fall due each year on that same date.
• Choice: state on form IHT400 that you want to pay in instalments.
• Interest: none on the first instalment unless it is paid late. On later instalments, interest is usually charged on the outstanding balance and on any late instalment. For assets inherited from 6 April 2026 that qualify for Agricultural Relief or Business Relief, there is no interest on the outstanding balance; late instalments still incur interest. The page does not give an interest rate, and I have not quoted one.
• Sale: when the assets are sold, the remaining tax must be paid in full.
• Early payment: write to HMRC and ask for a final assessment.

Which assets qualify

The page lists:

• any asset that qualifies for Agricultural Relief or Business Relief;
• land and buildings, including houses, as long as they are not sold (renting them out is fine);
• shares or securities that gave the deceased control of more than 50% of a company;
• unlisted shares or securities worth more than £20,000 that meet the page's 10% tests;
• other assets, if at least 20% of the estate's inheritance tax is on qualifying assets, or if a lump sum would cause financial difficulties;
• the net value of a business run for profit;
• certain gifts, if inheritance tax is still owed on them.

The sums

Our arithmetic on the dates: the first is 31 July 2027 and each following one falls on the same date, so the tenth is nine years later.

On the 20% test, take an estate with £150,000 of tax. £36,000 on qualifying assets is 24% of it, so the test is passed. £27,000 would be 18%, which fails, unless the lump sum would cause financial difficulties. The page does not say how a fee-earner should measure the percentage in a mixed estate, so check the full page and the IHT400 notes.

Points for the file

1. Note the instalment election on the IHT400 and diary the same date for each of the ten years.
2. Tell the executors that a sale of the asset brings the balance forward.
3. Remember that the first instalment falls on the ordinary payment date, so the estate still has to find the first tenth in six months.
4. Leave the interest question to the HMRC calculator, as the page directs.

For the wider timetable see the probate timeline calculator, and for what reduces the tax in the first place the guides on business property relief and the residence nil-rate band taper.

I did not read the separate publication that gives the interest rates, nor the IHT400 notes on how to value shares for the 10% tests.

Overlyft builds AI staff who join your private client team, read the asset schedule on each estate, mark which assets look eligible, calculate the instalment and its ten due dates, and prepare a note for the fee-earner to check before the IHT400 is completed.

This is general information, not legal advice. Check GOV.UK and the facts of the estate before you advise.