In order for executors (administrators where the deceased died intestate) to deal with assets in a deceased’s estate, they will need to obtain the grant of probate (letters of administration in the case of intestacy). The term ‘personal representatives’ is used below to describe both executors and administrators.

Currently, there can be delays of between 11 and 12 months in obtaining probate on an estate. This makes it more difficult for personal representatives to access cash to meet inheritance tax. With an interest rate of, currently, 7.75% payable on inheritance tax liabilities not paid within 6 months of death, this can become a very expensive process.

The average inheritance tax payable on an estate in 2020-21 was £214,000 and, if a liability of this amount is not paid within 6 months of the date of death, the estate would effectively be clocking up interest charges of £319 per week at the current rate of interest. A delay of 5 months after the 6 month payment deadline would give rise to an interest bill of £6,335.

Meeting an inheritance tax liability

It is often quoted by the government that less than 4% of estates are subject to inheritance tax. However, this number is starting to increase year-on-year and is forecast to be over 7% by 2032-33. The increase in the number of estates subject to inheritance tax is due in part to the rapid growth in the wealth of older people (the Silent Generation (1925-1945) and Baby Boomers (1946-1964)) and, in part, to the freezing of inheritance tax reliefs and allowances which is due to continue until 5 April 2028.

The nil rate band (NRB) has been frozen at £325,000 since 6 April 2009 and the residence nil rate band (RNRB) at £175,000 since 6 April 2020. Had they increased in line with consumer price inflation (CPI), these allowances would now be worth, in total, more than £700,000 per individual.

Whilst the number of estates subject to inheritance tax may appear small, those that are subject to tax can face substantial liabilities running into tens or hundreds of thousands of pounds.

When is inheritance tax due?

Inheritance tax on an individual’s estate is due 6 months after the date of death. If payment has not been made in full, HMRC can start charging interest on the outstanding amount. Interest is charged at 2.5% above the Bank of England base rate, so the current rate of interest is 7.75% p.a.

However, it is important to remember that it is not always that easy for the deceased’s personal representatives to raise the cash needed to meet an inheritance tax liability.  Also, in order to make an inheritance tax payment, the personal representatives should first obtain an inheritance tax reference number.

This should be applied for at least 3 weeks before the intended date of payment. It can be applied for online or by completing form IHT422.

The Direct Payment Scheme

In recognition of the problems faced by the deceased’s personal representatives, the government introduced the Direct Payment Scheme a few years ago. This allows banks, building societies and National Savings & Investments (NS&I) to make direct payments to HMRC from the deceased’s accounts to meet inheritance tax liabilities to allow probate to be granted. It is applied for by competing form IHT423 (a separate form is required for each account).

It may also be possible to sell shares with the funds passed to HMRC under the Direct Payment Scheme.

Other ways to pay

Banks and financial institutions may be prepared to release funds to the deceased’s personal representatives, outside of the Direct Payment Scheme, before probate (or administration) is granted. However, limits apply to the amounts that may be released, with each institution setting its own limits, so it may not be possible to raise the required amount using this route.

Personal representatives may also settle the estate’s inheritance tax liabilities using their own resources (if available). The amounts paid can then be reclaimed from the deceased’s estate or beneficiaries once probate (or administration) is granted.

Banks, in the past, offered probate or executor loans, but these are now much harder to find. Specialist lenders offer short term loans but the interest rates charged may be high.

Planning before death

Given the problems that personal representatives might have in raising cash to meet inheritance tax liabilities, it clearly makes sense for individuals to take action during their lifetime to make the position easier for their personal representatives to have relatively easy access to cash to meet the inheritance tax liability and so obtain probate. In this respect the following actions could be considered.

  • Where shares and/ or funds are held on a platform or under a nominee arrangement, it may be possible for the individual to give the platform provider or nominee advance authority to sell shares or funds ahead of probate to meet inheritance tax liabilities.
  • Where cash is held in, say, bank or building society accounts, the individual could consider placing this cash into a joint account(s) with their proposed personal representative or a close relation. On the individual’s death, the legal ownership of the account passes to joint account holder, although the beneficial ownership of the cash remains with the deceased individual. The joint account holder can then draw the funds down to meet the inheritance tax liability.

Probate trusts

The same outcome can be achieved by establishing a probate trust, where the assets are held in trust absolutely for the individual. The individual is the beneficiary of this trust and can therefore benefit from the assets placed into the trust during their lifetime with legal ownership vested in the trustees.

The assets held in such arrangements remain part of the individual’s estate for inheritance tax purposes (as they have the beneficial interest) but will not form part of the estate for probate (or administration) purposes, so could be accessed by the individual’s personal representatives after death to fund inheritance tax and other estate liabilities (such as funeral costs etc).

Using life assurance to fund inheritance tax liabilities

Effecting a life assurance policy which is then placed into a trust for the benefit of the deceased’s estate beneficiaries can be an efficient route to provide sufficient funds to meet an inheritance tax liability. The life assurance policy would typically be a whole of life policy either written on a single life basis or, where the individual’s will provides that their assets will pass to their surviving spouse or civil partner, on a joint life last survivor (second death) basis.

As the policy is held in trust, it does not form part of the deceased’s estate and is not subject to UK probate. On production of the death certificate, the trustees can claim the death benefits (or surrender value) from the life assurance company and distribute these to the trust beneficiaries. Those beneficiaries can then lend the cash to the personal representatives to meet the inheritance tax liability. Once they have obtained probate, the personal representatives can realise assets in the deceased’s estate and repay the borrowing to the beneficiaries.

Paying inheritance tax in instalments

Where estate assets comprise of property, land or certain qualifying shares, personal representatives can apply to HMRC, via form IHT400, to pay  the inheritance tax in instalments over up to 10 years. The first instalment is due six months after the date of the individual’s death.

Subsequent instalments will be subject to interest charges from HRMC (as will the first instalment if it is paid late).

The outstanding balance of the inheritance tax due  can be repaid at any time but will become due immediately if the assets are sold.


The deceased’s personal representatives may have many other duties to perform after an individuals death. Trying to raise funds to meet an inheritance tax liability may be an additional burden so it can make sense to arrange assets and/ or effect a life policy in trust so that funds can be in place to meet any potential inheritance tax liabilities on death.