Syllabus A3. Inheritance Tax A3g. IHT administration

A3gi. Payment of IHT by instalments

Syllabus A3gi)

Identify the occasions on which inheritance tax may be paid by instalments.

When can IHT be paid in instalments?

IHT in respect of certain assets can be paid in instalments.

Qualifying assets are:

  1. Land and buildings wherever they are located

  2. A business or an interest in a business

  3. A shareholding in a company where the transferor controlled the company immediately before the transfer. 

    For example, a company had 100,000 shares with a nominal value of £1 each, the transferor owned 60,000 shares before the transfer, this will qualify

  4. Unquoted shares with a value in excess of £20,000, which represents 10% or more of the company’s shares. 

    For example, a company had 100,000 shares with a nominal value of £1 each. 

    The transferor gave the transferee 20,000 shares with a nominal value of £20,000 – this will qualify as both conditions are satisfied.

How are the instalments paid?

Payment by instalments is in 10 equal annual instalments, the first instalment being due 6 months after the end of the month of death, therefore the first payment is the normal due date and the remaining 9 payments will be annual after that.

Is interest payable on the 9 instalments?

Interest will be due on the remaining 9 instalments for the following assets:

a) Land and buildings
b) Investment company shares 

Interest will only be due on the other assets if the actual instalment is paid late.

  • For example, if instalments were being paid the transfer of a business, then the 10 annual instalments would not attract interest, but if the instalments were being paid on land and buildings transfer, the first instalment would not attract interest but the 9 instalments after that would attract interest.

Restriction to the instalment option

The instalment option is only available provided the instalment asset is still owned by the donee, and if it is sold the whole of the outstanding IHT on that asset becomes payable immediately.

  • For example, if land and buildings were given to the donee, and the instalment option was used, if the land and buildings were sold by the donee, then all of the remaining IHT payable would be due immediately because of the sale of the asset.