Think of Inheritance Tax as the government’s final audit of your life’s work — a levy on everything from your home to your savings, calculated the moment someone dies, and due before most families have had time to grieve properly, let alone sell a property.
That timing is the thing most people don’t see coming. The bill doesn’t wait for probate. It doesn’t wait for the house to sell. It arrives at the six-month mark like a fixed appointment, and the meter runs from the day it’s missed.
This guide covers exactly how inheritance tax works in 2026 — the deadlines, the payment routes, the new relief limits that came into force in April, and the pension changes coming in 2027 that estate planners need to consider right now.
Quick Answer (2026): Inheritance tax is due within six months of the end of the month in which the person died — for a death on 12 March, that deadline is 30 September. Payment must usually be arranged before probate is granted, even though accessing the estate’s assets requires probate. HMRC charges 7.75% interest (Bank of England base rate + 2.5%) on late payments from the day after the deadline passes. From April 2026, the combined APR/BPR 100% relief cap is £2.5 million per person, transferable between spouses to give couples up to £5 million of protected business and agricultural assets.
What Inheritance Tax Actually Is
Inheritance tax (IHT) is a tax on the estate of someone who has died — their property, savings, investments, and possessions — when its total value exceeds certain thresholds set by HMRC. The standard nil-rate band is £325,000 in 2026, meaning estates below that figure pay no inheritance tax.
Above that threshold, the rate is 40% on the excess. Pass a home to children or grandchildren and the residence nil-rate band adds up to £175,000 more, taking the effective threshold to £500,000 for a sole estate or £1 million for a married couple or civil partnership. Drop that figure to 36% if at least 10% of the estate goes to a qualifying charity.
These thresholds sound generous until you factor in a decade of rising property values. A house in many parts of England that was comfortably below threshold in 2010 now drags an entire estate into liability — often by more than the executor expected.
The Six-Month Deadline — and Why It Catches Families Off Guard
HMRC’s rule is precise: inheritance tax is payable by the end of the sixth calendar month after the month of death. A person who dies on 12 March faces a 30 September deadline. A death on 1 November pushes the deadline to 31 May.
What makes this harder than it sounds is that probate — the legal authority to manage the estate — typically cannot be granted until the tax is paid or formally arranged. The sequence is:
Pay tax → Get probate → Access assets to repay any loans used for the tax.
Imagine having to find £80,000 for HMRC by September when the family home hasn’t even been listed yet. That funding gap is the number one cause of executor distress in 2026, and it’s why so many estates end up paying more than the original bill — because the loan or bridging finance arranged to cover it carries its own cost.
The Cost of Getting It Wrong in 2026
HMRC’s late payment interest rate is currently 7.75% — calculated as the Bank of England base rate plus 2.5%. With the base rate at 5.25% in May 2026, that formula produces the 7.75% figure cited above, but readers should track the formula rather than the snapshot number, since the Bank of England can move rates at any Monetary Policy Committee meeting.
What 7.75% looks like on a real estate:
| Outstanding IHT | Monthly interest | 6-month total | 12-month total |
|---|---|---|---|
| £50,000 | £323 | £1,940 | £3,875 |
| £100,000 | £645 | £3,875 | £7,750 |
| £250,000 | £1,615 | £9,688 | £19,375 |
That’s not a minor administrative penalty. On a six-figure estate, a missed deadline adds the cost of a decent family holiday every month. On a £250,000 bill, a year’s delay costs nearly £20,000 in interest alone — before any professional fees for sorting out the late filing.
How Inheritance Tax Gets Paid: The Real Options
The Direct Payment Scheme
The most straightforward route for cash-rich estates. Banks and building societies release funds directly from the deceased’s accounts to HMRC under the Direct Payment Scheme — no probate required, no cheque required. Executors submit form IHT423 to each institution holding funds.
In practice, the speed varies. Some high-street banks process DPS requests within a week; others take three to four. Executors dealing with an estate where cash is spread across multiple accounts should submit all DPS requests simultaneously rather than sequentially.
Instalments for Property and Business Assets
Where an estate is heavily property-based, executors can elect to pay over 10 annual instalments. The instalment option applies to land and property, certain unlisted shares, and qualifying business or agricultural assets.
For APR and BPR qualifying assets, the April 2026 rule changes make those 10-year instalments interest-free, even if the executor sells the underlying asset during the repayment period. This marks a clear shift from the previous position, where interest accrued once the asset was sold before the instalments finished. Executors handling farm or business assets should model whether the instalment route now outperforms a bridging loan.
Bridging Finance
For estates where the primary asset is the family home and liquid cash is minimal, bridging loans are often the only realistic mechanism. The sequence: executor arranges bridging finance, pays HMRC, obtains probate, lists and sells the property, and repays the loan from sale proceeds.
Rates vary, but bridging finance typically runs between 0.5% and 1% per month. On a £100,000 IHT bill over a four-month loan, that’s £2,000–£4,000 in interest — still far cheaper than a year of HMRC late payment charges if the alternative is missing the deadline entirely.
Life Insurance Held in Trust
The detail competitors rarely highlight: life insurance written into a discretionary trust sits outside the estate, meaning it doesn’t attract IHT itself and — critically — pays out before probate is granted. A policy structured this way can fund the entire IHT bill the day it’s due. Executors reviewing existing policies should check whether they’re written in trust or simply assigned; unassigned policies fall into the estate and offer no timing advantage at all.
The 2026 APR and BPR Changes: What the Initial Reports Got Wrong
When the APR/BPR cap was first announced in the 2024 Autumn Budget, the headline figure was £1 million. That number has since been updated in 2025 legislation confirmed in 2026: the combined allowance for 100% Agricultural Property Relief and Business Property Relief is £2.5 million per person.
The distinction matters enormously for farm and business owners. An individual with £2.4 million of qualifying agricultural land pays no IHT on that asset. At £3 million, the first £2.5 million still attracts 100% relief; only the remaining £500,000 moves to 50% relief — an effective rate of 20% on that portion (50% of the 40% headline rate).
The transferability point is the one most articles miss. That £2.5 million allowance is transferable between spouses or civil partners on the same basis as the standard nil-rate band. A couple with a working farm can stack their allowances to protect £5 million of qualifying assets from IHT entirely. For agricultural estates where this changes the liability calculation materially, early restructuring — before either partner dies — can make a significant difference.
The 2027 Pension Change: The Clock Is Already Running
From April 2027, unused pension funds will be included in the taxable estate for IHT purposes. The change affects defined contribution pensions — the pots accumulated through personal pensions, SIPPs, and most workplace pensions — where a fund has not been fully drawn down by the time of death.
Two operational details matter here. First, Pension Scheme Administrators (PSAs) will be responsible for calculating and paying the IHT directly from the pension pot, rather than the executor sourcing funds from elsewhere. Second, the government rejected a House of Lords amendment in March 2026 that would have extended the six-month payment deadline for pension-related IHT. The standard deadline applies.
For estates being structured now, this creates an immediate planning prompt. “Expression of Wish” forms — the documents that tell a PSA who should receive pension benefits — need reviewing in light of the 2027 rules. A form that made sense under the old regime (where pensions sat outside the estate entirely) may need to be rewritten. [VERIFY: Confirm whether Expression of Wish forms affect the IHT calculation under the 2027 rules or only determine distribution after tax is settled.]
Who Bears the Responsibility
The estate pays inheritance tax. Beneficiaries don’t receive a bill — they receive whatever remains after the estate has settled its liabilities. The executor is the person legally responsible for making sure HMRC is paid on time, the correct forms are submitted (typically IHT400 for estates above the threshold), and the documentation supports the valuations used.
That role has become considerably more demanding since 2026. The combination of the new APR/BPR caps, the pending pension inclusion, and higher interest rates on late payment means executors now need to think strategically — not just administratively — about how and when tax is paid.
Capital Gains Tax on Inherited Property: A Separate Question
IHT and capital gains tax (CGT) are often conflated. They’re entirely different taxes with different triggers. No CGT applies at the point of inheritance. The base cost of an inherited asset resets to its market value at the date of death — meaning CGT only becomes relevant if the asset is later sold for more than that figure.
On inherited property: if a property is worth £400,000 on the date of death and sells for £450,000 two years later, the £50,000 gain is potentially subject to CGT at the rates applicable at the time of sale. The IHT has already been settled — CGT is a separate calculation on the post-death appreciation only.
Strategic Note
The most expensive mistake executors make isn’t misunderstanding the tax rates — it’s underestimating the timeline. Estates where the primary asset is property and liquid reserves are low need a funding plan in place before the six-month deadline arrives, not after. That means starting the valuation process immediately, identifying which payment route fits the estate’s asset profile, and — if bridging finance or the instalment route is likely — beginning those conversations within weeks of death, not months.
The council tax implications of a property sitting empty during estate administration add another layer to the carrying cost calculation, particularly where sale takes longer than expected.
Common Mistakes in 2026 Estates
Missing the six-month deadline is the obvious one, but the subtler errors tend to cost more. Executors who assume the APR/BPR relief eliminates all tax — without checking whether the estate exceeds the £2.5 million per-person threshold — arrive at a surprise liability. Executors who value property at a rough estimate rather than a formal RICS valuation create disputes with HMRC that delay probate further.
Waiting for probate before acting on the tax is a structural error built into how many people misunderstand the sequence. The payment must be arranged first. Starting the process after probate is granted means the deadline has almost certainly already passed.
The pension documentation issue will begin affecting estates from 2027, but planning for it happens now. Any executor or beneficiary aware that the deceased held a large undrawn pension should be talking to a specialist before April 2027.
Inheritance Tax Timeline (2026)
| Stage | Typical timing |
|---|---|
| Death | Day 0 |
| Estate valuation begins | Weeks 1–4 |
| IHT forms submitted to HMRC | Weeks 4–10 |
| Payment due | End of month 6 |
| Interest begins accruing | Day after deadline |
| Probate granted | After tax arranged |
| Estate distributed | Final stage |
Real-World Example
David, a retired farmer in Yorkshire, dies in February 2026. His estate comprises the farmhouse (£750,000), agricultural land (£3.2 million), and cash savings of £85,000. His wife, Patricia, is still living.
Under the 2026 APR rules, David’s £2.5 million APR allowance covers the first £2.5 million of qualifying land. The remaining £700,000 of land attracts 50% relief — an effective 20% rate — producing a tax charge of £140,000 on that portion. The farmhouse qualifies for the residence nil-rate band, and the standard nil-rate bands (doubled via Patricia’s carried-forward allowance) cover the savings.
Patricia elects to transfer David’s unused APR allowance to her own estate, stacking it with her own £2.5 million allowance. On her eventual death, up to £5 million of qualifying agricultural assets will be fully exempt. The £140,000 bill David’s estate faces is paid via the 10-year instalment option — now interest-free for APR assets under the 2026 rules — keeping cash in the farm operation rather than forcing a fire sale.
FAQs
Q. When is inheritance tax payable in the UK?
Inheritance tax is payable by the end of the sixth month after the month of death. For example, if someone dies in March, the deadline is 30 September. HMRC begins charging interest from the following day if payment has not been made or formally arranged.
Q. Do you pay inheritance tax before probate is granted?
Yes. In most cases, inheritance tax must be paid—or payment arrangements made—before probate is granted. Executors often rely on the Direct Payment Scheme or instalments because estate assets may not yet be accessible without probate.
Q. Who pays inheritance tax in the UK?
Inheritance tax is paid by the estate, not the beneficiaries. The executor or administrator is legally responsible for valuing the estate, submitting HMRC forms, and ensuring the tax is paid before distributing assets.
Q. Can inheritance tax be paid in instalments?
Yes. Inheritance tax can be paid in instalments over up to 10 years for property, agricultural property, and qualifying business assets. From April 2026, instalments on assets qualifying for Agricultural Property Relief (APR) and Business Property Relief (BPR) may be interest-free, depending on eligibility.
Q. What happens if inheritance tax is paid late?
If inheritance tax is paid late, HMRC charges interest from the deadline date. As of May 2026, the rate is 7.75% (Bank of England base rate plus 2.5%). On a £100,000 tax bill, this is roughly £645 per month, increasing the total amount owed over time.
Q. Do beneficiaries pay tax on inheritance in the UK?
No. Beneficiaries do not pay inheritance tax directly. The estate settles all tax liabilities before distribution, so beneficiaries receive their inheritance net of tax with no personal liability for the original IHT bill.
Q. When is inheritance tax payable after death?
Inheritance tax is payable within six months of the end of the month of death. Executors must calculate and arrange payment early to avoid interest charges and delays in the probate process.
Q. When is capital gains tax payable on inherited property?
Capital gains tax is payable only when an inherited property is sold and has increased in value since the date of death. The base cost resets to the probate value, so tax applies only to the gain made after inheritance.
Q. What is the APR and BPR cap in 2026?
From April 2026, Agricultural Property Relief (APR) and Business Property Relief (BPR) allow 100% relief on qualifying assets up to £2.5 million per person. Assets above this threshold receive 50% relief, resulting in an effective 20% inheritance tax rate. The allowance is transferable between spouses, allowing up to £5 million of qualifying assets to be fully relieved.
For more guides on UK tax rules and estate planning, visit Pure Magazine.
