Who Pays The IHT Bill When The Estate Has No Cash? Instalments, Bank Loans and Forced Sales
- Adil Akhtar
- 3 hours ago
- 12 min read
Who Pays the IHT Bill When the Estate Has No Cash? Instalments, Bank Loans and Forced Sales
The personal representatives, the executors named in the will or the administrators appointed on intestacy, are legally responsible for paying Inheritance Tax (IHT) on the estate, and HMRC expects payment within six months of the end of the month of death regardless of whether the estate holds enough cash to cover it. For 2026/27, the standard rate remains 40% above the available nil-rate band, and where the estate consists largely of property, an unquoted business, or land, there are specific mechanisms, instalment payments, direct transfers from the deceased's own accounts, and a formal "grant on credit" arrangement, designed to bridge the gap between a tax bill that falls due quickly and assets that cannot be sold quickly.
This is one of the most practically important areas I deal with, because the legal mechanics of IHT create a genuine structural problem that catches families off guard even when the eventual tax liability itself is unsurprising. The estate cannot access its own money without a grant of probate. HMRC generally will not confirm the position needed for probate until the tax, or a credible arrangement to pay it, is in place. And most of the standard advice circulating online has not caught up with a significant change HMRC made to this process in 2024.
Who Is Actually on the Hook
The liability sits with the personal representatives personally, not with the beneficiaries, and not with a single named executor if there are several acting jointly. HMRC's Inheritance Tax Manual is explicit that personal representatives are personally liable for the IHT due on the estate, and are expected to consider all financial sources available to them, including their own funds, before HMRC will support alternative arrangements. This does not mean an executor is expected to fund a large IHT bill from their own pocket, and in practice HMRC's own approach has moved away from that expectation in recent years, but it does mean the legal responsibility does not automatically pass to beneficiaries simply because they are the ones who will eventually benefit.
Where a beneficiary or executor does pay IHT from their own funds, or from a joint account held with the deceased, they are entitled to reclaim that money from the estate once it is administered, and HMRC's guidance confirms this route remains available where an individual chooses to fund the payment personally.
The Six-Month Deadline and the Probate Catch-22
IHT is due, under section 226 of the Inheritance Tax Act 1984, on the last day of the sixth month after the month in which death occurred. Someone who dies on 12 March 2026, for example, has an IHT payment deadline of 30 September 2026. Interest accrues automatically on anything unpaid after that date, whether or not a grant of probate has yet been obtained, and whether or not HMRC has even made contact about the account.
The practical difficulty is that most estate assets, bank accounts, investment portfolios, and certainly property, cannot be accessed or sold without a grant of representation (called confirmation in Scotland), and the Probate Registry generally will not issue that grant until HMRC has confirmed the tax position is dealt with, either through payment or through one of the arrangements described below. This is the structural bind that defines almost every conversation I have with executors of asset-rich, cash-poor estates: you need the grant to get at the money, but you need to deal with the tax to get the grant.
The Direct Payment Scheme: Paying Before Probate
Where the deceased held funds in ordinary bank accounts, building society accounts, or National Savings and Investments products, HMRC's Direct Payment Scheme allows the executor to instruct the institution, using form IHT423, to transfer money directly to HMRC before probate is granted. A separate IHT423 is needed for each institution and account, and the bank or building society will typically ask the executor to provide evidence of their role before acting, since it is releasing funds it would not normally release without a grant.
This route only reaches money held in accounts. It does not extend to property, unlisted shares, or a business interest, which is precisely where the instalment option and the grant on credit mechanism become relevant.
What this Widget is About: Navigating an Inheritance Tax (IHT) bill when an estate lacks ready cash can be a daunting ordeal for executors and personal representatives. This interactive widget clearly breaks down vital UK tax mechanisms, covering everything from the strict six-month payment deadline and HMRC's Direct Payment Scheme to the updated 2026/27 interest-free instalment options for qualifying business and agricultural property. It also details modern administrative routes, such as HMRC's policy on grants on credit that remove the old expectation for executors to take out costly commercial loans. You can easily navigate through the dedicated tabs to explore your personal liabilities, evaluate asset reliefs, and discover practical funding solutions step-by-step. Designed by Pro Tax Accountant, this tool empowers you to handle illiquid estates efficiently and steer clear of unnecessary financial distress.
The 10-Year Instalment Option
Where IHT arises on land, buildings, certain unquoted shares, or the net value of a business or an interest in a business, the personal representatives can elect to pay the tax attributable to that asset over 10 equal annual instalments rather than as a single lump sum. The first instalment is still due by the standard six-month deadline, so this is not a way of avoiding the initial payment window, but it does mean only one-tenth of the relevant tax needs to be found immediately rather than the whole amount.
Interest is generally charged on the outstanding balance for each instalment after the first, calculated from the day after the previous instalment fell due, at HMRC's published Inheritance Tax interest rate, currently 7.75% from 9 January 2026, a rate that moves in line with the Bank of England base rate and is reviewed periodically. Because interest is charged on the full remaining balance each year rather than tapering down gradually, the total interest cost over 10 years on a large instalment can be substantial, and executors sometimes discover that stretching the payment out is considerably more expensive than accelerating repayment once the underlying asset is sold.
The instalment option is lost entirely if the qualifying asset is sold before the 10 years are up. At that point, all remaining tax and accrued interest becomes payable immediately, in full, which is worth flagging clearly to any executor who assumes instalments give them permanent flexibility over timing rather than a temporary bridge.
What Now Qualifies for Interest-Free Instalments
This is the point where recent legislative change genuinely matters for business owners and landowners specifically. From 6 April 2026, changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) introduce a combined £2.5 million allowance for 100% relief on qualifying agricultural and business property, transferable between spouses so that a couple can shelter up to £5 million between them, with 50% relief applying above that threshold, producing an effective 20% IHT rate on the excess.
Alongside this change, HMRC's own policy paper on the APR and BPR reforms confirms that the option to pay Inheritance Tax by 10 annual instalments interest-free is being extended to cover all property eligible for agricultural or business property relief, not just the narrower categories that previously benefited from interest-free treatment.
For a business owner or farming family whose estate now faces a real IHT charge on value above the £2.5 million allowance, this is a meaningful mitigation. The tax on the relieved excess can be spread over 10 years without the compounding interest cost that applies to instalments on ordinary land, investment property, or shares in a company that does not qualify for relief. A residential buy-to-let portfolio, or shares in an investment company rather than a trading one, do not benefit from this interest-free treatment and remain subject to the standard instalment interest charge.
When the Instalment Option Isn't Enough: Grant on Credit
Here is the development that most generalist articles on this topic still miss, because it changed relatively recently and quietly. Since 1 April 2024, HMRC's position is that personal representatives are no longer expected to seek a commercial loan to fund an IHT payment before applying for what is called a "grant on credit". HMRC's own guidance on applying for a grant on credit sets out that where the personal representatives cannot release funds from the estate using the Direct Payment Scheme or other available routes, and can demonstrate they have made every practical effort to raise the money, HMRC can agree to issue the grant before the tax is fully paid, in exchange for a formal, legally binding undertaking to pay the outstanding tax and interest within an agreed timescale once the assets are realised.
Before this change, executors facing a genuinely illiquid estate, no accessible cash, and an asset such as a house that could not be sold until probate was obtained, were often pushed towards a commercial executor loan or bridging finance simply to get past the tax hurdle and unlock the grant. HMRC's revised position explicitly removes that expectation as a precondition. It does not remove the tax liability, and interest still accrues on anything unpaid past the six-month deadline, but it changes the practical route considerably, and in my experience it is worth raising directly with HMRC before assuming a commercial loan is the only option, since the paperwork and undertaking involved are usually less costly than the interest on a specialist bridging facility.
Not Sure How to Manage IHT Without Cash?
The general rule is one thing. What it means for you is another. Tell us your circumstances and one of our UK tax specialists will give you a straight answer on your own position. Free, no obligation.
Executor Loans and Beneficiary Funding
Where a grant on credit is not appropriate, or where the estate needs funds faster than HMRC's process allows, borrowing remains an option, either through a loan secured against the estate itself once some assets are accessible, a personal loan taken by the executor with a view to reimbursement, or a contribution from a beneficiary who wants to unlock the estate sooner and is confident of recovering the sum later. A detail worth knowing here concerns the tax treatment of interest on a loan taken specifically to pay IHT: HMRC's own manual confirms that interest on such a loan attracts income tax relief, but only for interest relating to a period ending within 12 months of the loan being taken out. A three-year loan, for example, only generates relief on the interest attributable to its first year, which matters when comparing the real cost of borrowing against simply accepting the instalment option's interest charge on a qualifying asset.
A Worked Example
Take a director who dies owning a trading company worth £3.4 million, a family home worth £650,000, and £40,000 in personal savings. His estate has no other significant cash. After applying his available nil-rate band and residence nil-rate band, and the new £2.5 million 100% relief allowance for the qualifying trading company shares, roughly £900,000 of the company's value sits above the relief threshold, attracting 50% relief and an effective 20% charge, alongside the standard 40% liability on the value of the house above his remaining nil-rate band.
His executors can use the Direct Payment Scheme to clear a portion of the bill from his £40,000 of savings immediately. The tax attributable to the house and the unrelieved slice of company value qualifies for the 10-year instalment option, with the house instalments carrying standard interest at 7.75% and the company shares benefiting from the newly extended interest-free instalment treatment. If even the first instalment proves difficult to find before probate is granted, because the company's value cannot practically be extracted without disrupting the business, the executors can approach HMRC for a grant on credit rather than defaulting to a commercial bridging loan, provided they can show they have exhausted the more straightforward routes first.
Scotland and Wales: The Position Explained
The rules on IHT liability, the six-month payment deadline, the Direct Payment Scheme, the 10-year instalment option, and the grant on credit process apply identically across the whole of the UK, since IHT is not a devolved tax. In Scotland, the equivalent to a grant of probate is called confirmation, and the relevant forms differ slightly, form C1 rather than IHT421, but the underlying structure, including the requirement to deal with the tax position before confirmation is issued, is the same.
Wales follows the England and Wales probate system directly, with no separate Welsh process. Executors administering a Scottish estate should also be aware that the concept of legal rights, the entitlement of a surviving spouse and children to a fixed share of the deceased's moveable estate, can affect which assets are actually available to fund an IHT payment, since a beneficiary exercising legal rights may take assets outside the terms of the will itself.
What this Widget is About: This interactive explainer widget guides UK taxpayers and personal representatives through the practical challenges of paying Inheritance Tax when an estate is asset-rich but cash-poor. It clearly sets out who is legally liable, the six-month payment deadline, the Direct Payment Scheme, ten-year instalments (including the interest-free option for qualifying agricultural and business property from April 2026), and HMRC’s grant-on-credit process introduced in 2024. Simply tap the coloured tabs at the top to move between sections on liability, deadlines, payment options, instalments, grants on credit, a worked example and practical steps. Expand the accordion items in the checklist for further detail, and refer to the key fact boxes and summary table for quick reference figures. Created by Pro Tax Accountant, the widget offers a clear, reliable overview to help executors navigate the process without unnecessary commercial borrowing or forced sales.
Practical Steps Worth Taking
● Establish early which assets in the estate qualify for the 10-year instalment option, land, unquoted shares, and business interests, since this materially changes the cash needed within the first six months.
● Where the estate includes agricultural or business property, check whether it now sits above the £2.5 million relief allowance from 6 April 2026, and confirm whether the interest-free instalment extension applies to the relevant asset.
● Use the Direct Payment Scheme for any accessible bank, building society, or NS&I funds before considering borrowing, since it requires no interest and no grant of probate.
● If the estate genuinely cannot raise the funds through available routes, raise a grant on credit application with HMRC directly rather than assuming a commercial executor loan is the only way forward, since HMRC's own position since April 2024 no longer expects PRs to borrow commercially first.
● If borrowing is unavoidable, be aware that income tax relief on the interest is only available for the first 12 months of the loan, which should factor into any comparison against simply using the instalment option instead.
Key Takeaways
An estate with genuine cash-flow difficulty is not automatically forced into a distress sale or an expensive commercial loan. Between the Direct Payment Scheme, the 10-year instalment option, the now considerably wider interest-free instalment treatment for qualifying business and agricultural property, and HMRC's own grant on credit process, there is a structured route through even a genuinely illiquid, high-value estate. The mistake I see most often is executors assuming their only choices are pay in full immediately or borrow commercially, when HMRC's own published position has moved deliberately away from expecting the second option since 2024.
FAQs
Who is legally responsible for paying an estate's Inheritance Tax bill?
The personal representatives, the executors or administrators, are personally liable for ensuring IHT is paid, though they are entitled to use the estate's own assets and to reclaim any personal funds they contribute once the estate is administered.
Can I access the deceased's bank account to pay HMRC before I get probate?
Yes, through HMRC's Direct Payment Scheme, using form IHT423, participating banks, building societies, and NS&I can transfer funds directly to HMRC from the deceased's own accounts without waiting for a grant of probate to be issued.
What assets qualify for the 10-year instalment option?
Land, buildings, certain unquoted shares, and the net value of a business or a business interest after deducting Business Property Relief can have their attributable IHT paid over 10 equal annual instalments, with the first instalment still due within six months of death.
Do I have to pay interest if I choose to pay Inheritance Tax by instalments?
In most cases, yes, calculated on the outstanding balance from the day after each instalment falls due, at HMRC's published rate, currently 7.75%. Property qualifying for the £2.5 million agricultural and business property relief allowance from 6 April 2026 benefits from interest-free instalment treatment instead.
What happens if I sell the asset before the 10-year instalment period ends?
The instalment option ends immediately, and all remaining tax plus any accrued interest becomes payable in full at that point, rather than continuing over the original 10-year schedule.
Do I have to take out a loan if the estate can't pay Inheritance Tax before probate?
Not automatically. Since 1 April 2024, HMRC's position is that personal representatives are not expected to seek a commercial loan before applying for a "grant on credit", an arrangement allowing the grant to be issued while some or all of the tax remains outstanding under a formal undertaking to pay once assets are realised.
Is interest on a loan taken out to pay Inheritance Tax tax-deductible?
Income tax relief is available on the interest, but only for interest relating to the first 12 months of the loan, regardless of the loan's actual term, which is an important factor when comparing the true cost of borrowing against using the instalment option.
Are the rules different if the deceased lived in Scotland?
The core IHT rules, deadlines, and payment mechanisms are identical, since Inheritance Tax is reserved to the UK government. The main practical difference is terminology, confirmation rather than probate, and the relevant forms, alongside the effect of Scottish legal rights on which estate assets are actually available to fund the payment.
Can beneficiaries be forced to sell an inherited property just to pay the tax bill?
Not necessarily. Where the property itself is the source of the tax liability, the instalment option allows the tax on it to be spread over 10 years rather than forcing an immediate sale, provided the personal representatives elect for this treatment when submitting the estate's IHT return.
About the Author:
Adil Akhtar, ACMA, CGMA, FCMA (membership ID is 990250923) serves as CEO and Chief Accountant at Pro Tax Accountant, bringing over 18 years of expertise in tackling intricate tax issues. As a respected tax blog writer, Adil has spent more than eighteen years delivering clear, practical advice to UK taxpayers. He also leads Advantax Accountants (registered with Companies House), combining technical expertise with a passion for simplifying complex financial concepts, establishing himself as a trusted voice in tax education.
Email: adilacma@icloud.com
Disclaimer:
The content provided in our articles is for general informational purposes only and should not be considered professional advice. Pro Tax Accountant strives to ensure the accuracy and timeliness of the information but makes no guarantees, express or implied, regarding its completeness, reliability, suitability, or availability. Any reliance on this information is at your own risk. Note that some data presented in charts or graphs may not be 100% accurate.
.png)