Yes, inheritance tax must usually be paid before probate is granted. Under the Inheritance Tax Act 1984 section 226, IHT becomes due six months after the end of the month in which death occurred, and HMRC requires at least part of the liability settled before issuing the grant. For landlords and property investors, this creates a critical funding challenge: rental portfolios cannot be sold without probate, but probate cannot be obtained without paying IHT first. The most common solution is HMRC's direct payment scheme, which allows IHT to be paid directly from the deceased's bank accounts before probate is granted.
This guide explains when IHT must be paid, how to fund the payment when estate assets are illiquid, and what options executors have when property must be sold to cover the tax bill.
What is Inheritance Tax?
Inheritance Tax is charged on the value of a deceased person’s estate. It includes assets such as property, money, and possessions. If the value of the estate exceeds the threshold of £325,000 (the nil-rate band), it is subject to a 40% tax on the amount above this threshold, though various exemptions and reliefs can reduce the tax liability.
What is Probate?
Probate is the legal process of administering a deceased person’s estate, which includes proving the validity of the will (if one exists), identifying and valuing the estate’s assets, paying off any debts, and distributing the remaining assets to the beneficiaries. If the person hasn’t left any will or have not named any executors in the will then, the closest relative can apply to be the administrator of the estate. Generally, the closest living relative would-be husband/wife/civil partner followed by any children18 or over (including legally adopted but not stepchildren).
Use the following IHT calculator to identify the closest living relative when none of the above applies.
The Grant of Probate is the official document that gives executors/Administrators the authority to manage the estate.
Understanding the process of Probate
The probate process starts with finding the deceased person's will, which details how their assets should be distributed. The next step is appointing an executor (if named in the will) or an administrator (if there’s no will), who is in charge of handling the process. The executor or administrator then values the estate, including all assets and debts. Before the estate can be divided among beneficiaries, any outstanding debts and taxes, including inheritance tax, must be paid using the estate's funds. Once these are settled, the remaining estate is distributed to the beneficiaries according to the will or, if there is no will, according to state law.
How can you pay Inheritance Tax?
The payment of IHT can be made in various ways:
Direct Payment Scheme
The Direct Payment Scheme allows executors to pay IHT directly from the deceased's bank accounts before probate is granted. Most major UK banks and building societies participate. The scheme only works for accounts held in the deceased's sole name, not joint accounts.
- Step 1: Complete form IHT423
Fill in HMRC form IHT423 for each bank or building society holding funds you want to access. You can submit multiple IHT423 forms if the deceased held accounts at different institutions and no single account contains enough to cover the full IHT bill.
- Step 2: Send IHT423 to the bank
Send the completed IHT423 directly to the bank (not to HMRC) along with a certified copy of the death certificate and a copy of form IHT400 (the full IHT account).
- Step 3: Bank transfers funds to HMRC
The bank transfers the funds directly to HMRC's account (sort code 08-32-10, account number 12001039).
- Step 4: HMRC issues receipt
Once HMRC receives payment and accepts your IHT400 return, they issue form IHT421, which confirms payment. You then use the IHT421 when applying for the grant of probate.
Note: ISAs held by the deceased can be used under the Direct Payment Scheme. Premium Bonds cannot. They must be encashed after probate is granted. Because HMRC charges interest at 8.25-8.75% per annum on unpaid IHT after six months, using the Direct Payment Scheme early avoids these charges accumulating.
Pay Inheritance Tax in Instalments
For estates where most value is tied up in property, land, or business interests, executors can pay IHT in ten annual instalments. This option applies only to the IHT attributable to those specific assets, not the entire estate.
Key requirements:
- First instalment deadline: Due within six months of death (the same deadline as the full IHT payment). Executors must raise funds for at least one-tenth of the property-related IHT to obtain probate.
- Interest charges: No interest is charged on the first instalment if paid on time. Interest at 8.5% per annum accrues on the remaining nine instalments from the six-month deadline.
- If property is sold: The full outstanding IHT on that asset becomes immediately due. You cannot continue paying instalments once the asset is sold.
- For landlords: This instalment option prevents forced property sales to pay IHT, but the interest charges mean the total tax bill exceeds the original liability. Most executors pay the first instalment to secure probate, then pay the remaining balance in full once the property is sold to minimise interest.
Can the Inheritance Tax be Delayed?
While IHT typically must be settled before probate is granted, there are cases where the process may be delayed. For example:
Complex Estates
If the estate includes a property that is difficult to sell or assets that require careful valuation, executors may be granted an extension to pay the tax.
Payment Plans
In certain cases, executors may be able to arrange a payment plan for larger estates, which allows the tax to be paid overtime. However, this arrangement must be approved by HMRC and should not delay the probate process significantly.
You will have to provide HMRC a statement explaining the steps taken to fund the tax liability. This should include confirmation that all sources of funding mentioned in IHTM05122 have been pursued or not, if that is not the case, an explanation of why not.
HMRC will consider your application for a grant on credit on its merits. For this reason, it’s a good idea to make your application as detailed as possible.
HMRC could also consider delaying IHT if it is to the detriment of exchequer.
Conclusion
In short, Inheritance Tax must generally be paid before probate is granted. Executors are responsible for ensuring that the IHT return is filed and that the tax is paid promptly to avoid delays in obtaining the Grant of Probate. Depending on the size of the estate and its assets, there may be options for paying IHT in instalments, especially for larger estates. Executors must work closely with HMRC to ensure that all tax obligations are met, allowing the probate process to proceed smoothly.
As the rules surrounding IHT and probate can be complex, it’s advisable for executors to seek professional guidance from tax advisors or solicitors to navigate the process correctly and avoid costly mistakes.
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FAQs
Only in specific circumstances. If the estate is below the nil-rate band (£325,000) or if the full estate passes to an exempt beneficiary (surviving spouse, civil partner, or qualifying charity), no IHT is due and probate can proceed without any IHT payment. For all other estates where IHT is due, you must pay at least some of it before the probate registry will issue the grant.
IHT must be paid within six months of the end of the month in which the person died. For example, if someone dies on 15 March 2025, IHT is due by 30 September 2025. After this deadline, HMRC charges interest at 8.5% per annum on any unpaid tax. There is no strict deadline for applying for probate itself, but executors typically apply soon after paying IHT to avoid delays in accessing estate assets.
If the estate is primarily illiquid assets (property, business interests), executors have several options: use the Direct Payment Scheme to pay from the deceased's bank accounts, pay from personal funds and reclaim later, apply for a grant on credit from HMRC, arrange payment by instalments for qualifying assets (property, land, unlisted shares), or take out a commercial executor loan.
Yes, executors can pay IHT from personal funds and reclaim the money from the estate once probate is granted. This is common when the estate has insufficient liquid funds but the executor wants to avoid interest charges accumulating on the unpaid tax.
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