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When are the instalments due?

You pay the first instalment on the ‘due date’ – the day you would have paid the full tax if you were paying it as a lump sum. The due date is exactly six months from the end of the month in which the person died. The table below shows how to work out the due date. Interest starts from the following day.

The second instalment is due on the same day exactly 12 months after the first payment.

The remaining instalments are due on the same day each year for the next eight years.

What interest rate is charged on instalments?

Interest rates change from time to time, you can follow the link below to see interest rates from October 1988 to date.

• Interest rates on overdue Inheritance Tax Opens new window

How interest is charged on instalments

You’ll only be charged interest on the first instalment if you pay the instalment after the due date. In this case, HM Revenue & Customs (HMRC) will charge you interest on the first instalment from the day after the due date to the day you pay.

On each later instalment, HMRC charges interest on both of the following:

• the whole unpaid portion of the tax for one year
• the instalment itself, from the date it’s due to the date of payment – but only if it’s paid after the due date
  

Each year, about four weeks before the instalment is due, HMRC will send you a statement showing the instalment due plus how much interest you need to pay. They will base this on the interest rates that applied during the year and apply them to the full outstanding balance of the Inheritance Tax to get the overall instalment payment due. Follow the link below to see interest rates.

You can pay the full tax and interest due at any time.

However, if you choose to continue to pay by instalments, interest will be worked out on the outstanding balance and added to each instalment.

If you pay your instalment after the instalment due date, you’ll have to pay further interest on the instalment itself.

The calculation for working out the interest is the tax due x the interest rate x the number of days ÷ 366 = interest due.

• Interest rates on overdue Inheritance Tax Opens new window

Example

In this example, the first two instalments are paid after the due date, but the third one is paid on time.

The deceased died on 10 December 2005, so the due date for the first instalment was 30 June 2006. The Inheritance Tax due is £10,000. You’re expected to pay ten annual instalments of £1,000 each, plus interest, due on 30 June each year.

Instalment one: due 30 June 2023 but paid 12 September 2023

As this is the first instalment, you don’t pay any interest on the full outstanding tax. However, you do pay interest on the instalment itself because you’ve paid it a couple of months after the due date.

Interest on instalment paid after the due date: 1 July 2023 to 12 September 2023

• from 1 July to 5 September 2006, 67 days at 3 per cent
• interest due: £1,000 x 3 per cent x 67 ÷ 366 = £5.49
• from 6 to 12 September 2006, seven days at 4 per cent
• interest due: £1,000 x 4 per cent x 7 ÷ 366 = £0.77
• total interest on the instalment: £5.49 + £0.77 = £6.26
• total payment to HMRC: £1,000 + £6.26 = £1,006.26
  

Instalment two: due on 30 June 2023 but paid on 19 September 2023

On this instalment, you pay interest on the full outstanding tax, as well as interest on the instalment payment itself, because it was again made a couple of months after the due date.

Interest on the full outstanding tax of £9,000, 1 July 2023 to 30 June 2023

• from 1 July to 5 September 2006, 67 days at 3 per cent
• interest due: £9,000 x 3 per cent x 67 ÷ 366 = £49.43
• from 6 September 2023 to 30 June 2007, 298 days at 4 per cent
• interest due: £9,000 x 4 per cent x 298 ÷ 366 = £293.11
• total interest on the full outstanding tax: £49.43 + £293.11 = £342.54
• total instalment payment due to HMRC: £1,000 + £342.54 = £1,342.54
  

Interest on instalment paid after the due date, 1 July to 19 September 2023

• from 1 July to 5 August 2007, 36 days at 4 per cent
• interest due: £1,000 x 4 per cent x 36 ÷ 366 = £3.93
• from 6 August to 19 September 2007, 45 days at 5 per cent
• interest due: £1,000 x 5 per cent x 45 ÷ 366 = £6.15
• total interest on the instalment: £5.28 + £8.07 = £10.08
• total payment to HMRC: £1,342.54 + £10.08 = £1,352.62
  

Instalment three: due and paid on 30 June 2023

You only pay interest on the full outstanding tax because the instalment was paid on time.

Interest on the full outstanding tax of £8,000, 1 July 2023 to 30 June 2023

• from 1 July to 5 August 2007, 36 days at 4 per cent
• interest due: £8,000 x 4 per cent x 36 ÷ 366 = £31.47
• from 6 August 2023 to 5 January 2008, 153 days at 5 per cent
• interest due: £8,000 x 5 per cent x 153 ÷ 366 = £167.21
• from 6 January to 30 June 2008, 177 days at 4 per cent
• interest due: £8,000 x 4 per cent x 177 ÷ 366 = £154.75
• total interest on the full outstanding tax: £31.46 + £167.21 + £154.74 = £353.43
• total payment to HMRC: £1,000 + £353.43 = £1353.43
  

It can be complicated to work out the right amount of interest. If you need help, call the Probate and Inheritance Tax Helpline.

• Contact the Probate and Inheritance Tax Helpline

More useful links

• Work out the interest due with an interest calculator Opens new window

Useful contacts

• Probate and Inheritance Tax Helpline