How is inheritance tax paid?
When Inheritance Tax is payable on an Estate, HM Revenue and Customs offer different options for payment.
Firstly, before you can pay any inheritance tax, you will need to request an inheritance tax reference. You can do this online, here or by post using form IHT422, available on gov.uk, here.
Once you have this number, one option for payment is the Executor of the Estate. They may be in a position to make payment of the Inheritance Tax on behalf of the Estate, which they can then claim back once the Estate funds have been collected in. For example, if there is no money available until a property is sold or investments have been sold (which could both require a Grant of Probate), they may make this payment to prevent any delays or penalties being incurred.
Alternatively, if there are sufficient funds available in the deceased’s bank accounts or government stock, you can complete form IHT423 to request that the organisation makes direct payment of any inheritance tax due.
If you do not know how much inheritance tax to pay, you can make payments ‘on account’. This will be deducted from the final amount of inheritance tax due, once HM Revenue and Customs has calculated this amount.
If the inheritance tax is payable on things that could take some time to sell, for example, a property, you can make payment of the tax due over equal instalments. These are usually payable annually, over a 10-year period. You must select this option on the form IHT400 when you complete this. Once the asset in question has been sold, any inheritance tax must be paid off in full.