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A Guide to Interest on Inheritance Tax

25th January, 2024

Inheritance tax is a reality that many individuals and families must face when dealing with the passing of a loved one. By 2032 – 33, it’s predicted that 12% of people will have inheritance tax due – either on their death or their partner’s.

While it’s essential to understand the basics of inheritance tax, an often overlooked aspect is the interest that may accrue on unpaid taxes.

In this guide, we discuss the ins and outs of interest in inheritance tax, shed light on the implications, and provide valuable insights for individuals, executors, and beneficiaries alike.



  1. What is Inheritance Tax?
  2. How Much Is Inheritance Tax?
  3. The Importance of Timely Payment
  4. The Interest on Inheritance Tax
  5. Factors Influencing Interest Rates
  6. Consequences of Delayed Payment
  7. Options for Settling Inheritance Tax
  8. Mitigating Interest Charges
  9. Haggards Crowther Can Support You With


What is Inheritance Tax?

Inheritance tax is a levy imposed on the estate administration of a deceased person before the assets are distributed to beneficiaries by the personal representative.

The rate and thresholds for inheritance tax can vary depending on the jurisdiction – so it’s important to understand the specific regulations applicable in your area.

The tax is typically calculated based on the total value of the deceased’s assets and estate, which may include property on the property market, money, bank accounts, investments, and other assets such as possessions. You can learn all about inheritance tax on gifts in this helpful blog post.


How Much Is Inheritance Tax?

For the tax year 2024/25, there is no inheritance tax due on the initial £325,000 of an estate. Any amount exceeding this threshold is subject to a 40% tax rate.

This threshold has been in place since 2009 – and will remain frozen until the 2027-2028 tax year. Notably, the taxable amount is reduced for individuals who hand down their homes to their ‘direct descendants’. This is as of January 2024.


The Importance of Timely Payment

Inheritance tax payments are usually due within a certain time frame after the date of death. In most cases, it is due by the end of the sixth month after the person has died. Failing to pay on time can result in financial penalties and interest charges.

Executors of an estate help to ensure that the tax liability is assessed accurately and settled promptly. However, even with the best intentions, there may be unforeseen circumstances that can lead to delays in the payment process.


The Interest on Inheritance Tax

Interest on inheritance tax is essentially a penalty imposed on the outstanding amount of tax that remains as unpaid inheritance tax after the specified deadline. The purpose of charging interest is to encourage timely payment and discourage prolonged delays.

The rates and calculation methods for interest can vary, adding an additional layer of complexity to an already intricate process.


Factors Influencing Interest Rates

Interest rates on inheritance tax can be influenced by several factors, including:

  • The duration of the outstanding debt
  • Local regulations
  • Economic conditions

Be sure to stay informed about any changes in interest rates. Failing to do so may result in an unexpected additional burden. Executors and beneficiaries should consult with tax professionals to ensure they are up to date with the current interest rate landscape.

It’s important to note that the specific method of interest calculation may vary based on local tax laws, so always seek professional advice to ensure accuracy.

Interest in inheritance tax may seem complex, but the basic idea is as follows:

  • Principal – This is the amount of inheritance tax you owe (like the total bill)
  • Rate – The interest rate, or how much extra you have to pay (think of it as a percentage)
  • Time – This is how long the tax remains unpaid (measured in years)


Consequences of Delayed Payment

The consequences of delayed payment of inheritance tax can be severe, with interest charges compounding over time.

Executors may find themselves in a challenging position – especially if the estate lacks liquidity or if there are disputes among beneficiaries.

To reduce the risk of accruing substantial interest, be sure to address the tax liability promptly and explore available payment options. You can request to postpone payments through the government website.


Options for Settling Inheritance Tax

There are several ways you can settle inheritance tax – and the most appropriate choice will depend on the circumstances of the estate and the financial capabilities of the beneficiaries.


Liquidating Assets

Selling assets from the estate, such as property or investments, can provide the necessary funds to settle the inheritance tax liability.

This approach may require careful consideration, as it could impact the overall value of the estate and the inheritances received by beneficiaries.



Executors or beneficiaries may opt to release funds to borrow and cover the inheritance tax liability, with the expectation that the debt will be repaid using assets from the estate.

This strategy requires a careful assessment of the estate’s financial situation and the ability to repay the borrowed amount within a reasonable timeframe.


Instalment Plans

Some jurisdictions offer instalment plans that allow beneficiaries to pay the inheritance tax in multiple payments over an extended period.

While this option can provide flexibility, be aware of any associated interest rates and penalties if you want to keep a tax-free allowance.


Insurance Policies

In certain cases, the deceased may have taken out life insurance policies with the intention of covering the inheritance tax liability.

Executors should review the terms of any existing policies and explore this option as a potential source of funds.


Mitigating Interest Charges

While interest charges on inheritance tax may seem inevitable, there are steps that executors and beneficiaries can take to mitigate these additional costs. Proactive and strategic tax planning is key to avoiding unnecessary financial burdens. Here are some effective strategies to consider:


Early Assessment

Conducting a thorough assessment of the estate’s value and tax liability as early as possible allows for better financial planning. Executors can identify potential challenges and explore options for settling the tax without incurring excessive interest.


Professional Guidance

Seeking advice from tax professionals, accountants, or legal experts can help to streamline the process. Professionals can provide insights into the best strategies for minimising tax liability and managing interest charges.


Negotiation with Tax Authorities

In certain situations, tax authorities may be open to negotiation regarding interest charges. Executors and beneficiaries should communicate openly with the relevant authorities, explaining any challenges faced and exploring possible solutions.


Timely Payment

The most effective way to mitigate interest charges is to make timely payments. Executors should prioritise settling the inheritance tax promptly, even if it requires utilising available resources or exploring short-term financing options.


Inheritance Tax Support

Interest on inheritance tax is a significant consideration that should not be overlooked in the estate settlement process.

Executors and beneficiaries must be aware of the potential consequences of delayed payments and take proactive steps to address the tax liability promptly.

At Haggards Crowther, we are on hand to help to mitigate interest charges by providing comprehensive guidance on settlement strategies, such as:

  • Asset liquidation
  • Borrowing
  • Instalment plans
  • Leveraging existing insurance policies

Early assessment and proactive planning align seamlessly to minimise tax liability and manage interest costs effectively when it comes to inheritance tax.

Contact us today by calling 020 7384 0920 or emailing for enquiries and to find out how we can help you!