Inheritance tax on certain assets that take time to sell, mainly houses and other real property, business interests and some shareholdings, can be paid in ten equal annual instalments under IHTA 1984 section 227. Interest is normally charged on the unpaid balance, but instalments are interest free for assets qualifying for business or agricultural relief and for most business interests and private company shares, so long as each instalment is paid on time. Selling the asset ends the option.

Which assets qualify for instalments?

Section 227(2) defines “qualifying property”. For deaths on or after 6 April 2026 it covers:

  • real property of any description, wherever situated, including the family home and let property;
  • any relevant business property for business relief, a category added by Finance Act 2026 Schedule 12 paragraph 13;
  • shares or securities within section 228 that are not relevant business property;
  • a business or an interest in a business, valued at its net value, including professions and vocations.

Section 228 lets shares and securities qualify if they gave the deceased control of the company, or if they are unquoted and one of three tests is met: paying the tax in one sum would cause undue hardship; at least 20% of the tax for which the same person is liable in the same capacity is on instalment property (IHTM30219); or the shares are worth more than £20,000 and have a nominal value of at least 10% of the company’s shares or ordinary shares (IHTM30220). Quoted shares outside a control holding do not qualify. Tax on woodlands left out of account at death and later charged under section 126 can also be paid by instalments under section 229 (IHTM30300).

Lifetime gifts that become taxable on death can qualify too, but under section 227(1A) and (1C) only if the recipient still owned the property at the donor’s death (or their own earlier death), or relief is preserved under the replacement property rules.

When are the instalments due and how is the option chosen?

The first instalment is due six months after the end of the month of death (section 227(3)), the same date as the normal due date, and the rest follow on the same date each year. A death on 12 January gives a first instalment date of 31 July. The option must be elected in writing (IHTM30202); on the IHT400 the tax on instalment assets sits in column B and the election is made at box 110, as covered in completing the IHT400. Executors can pay off the balance with interest at any time by asking HMRC for a final assessment. If additional tax later arises on instalment property, for example after a valuation increase, IHTM30204 says it can also be paid by instalments.

Because only column A tax and any instalments already due must be paid before the grant (IHTM30172), the election also eases paying inheritance tax before probate.

How is interest charged on ordinary instalments?

For most qualifying property, including a house, interest under section 233 is added to each instalment (section 227(3)). GOV.UK explains that the first instalment carries no interest if paid on time. Each later instalment carries interest on the whole tax still outstanding since the previous due date, plus interest on the instalment itself if paid late. IHTM30362 gives the same calculation. The rate is HMRC’s inheritance tax late payment rate, which changes from time to time with market rates; see HMRC late payment interest and HMRC’s published interest table.

Which instalments are interest free?

Section 234 gives interest relief: interest runs only from each instalment’s due date, so an instalment paid on time costs nothing extra. As amended by Finance Act 2026 Schedule 12 paragraph 13, it applies to tax on:

  • value treated as reduced by business relief or agricultural relief;
  • shares, securities, a business or an interest in a business, even where no relief reduces the value;
  • woodlands tax under section 229.

Shares in companies whose business is wholly or mainly dealing in or holding investments, securities or property are excluded from the second category by section 234(2) and (3) unless the tax relates to value reduced by relief. GOV.UK confirms that interest free instalments for all assets qualifying for agricultural or business relief apply to assets inherited from 6 April 2026, and that the new rules do not apply to assets already being paid by instalments before that date. Before 6 April 2026, IHTM30213 explains, real property was interest free only if agricultural relief reduced its value or it formed part of a business being transferred.

IHTM30363 lists three cases where interest can still arise on interest free instalments: a late instalment, an increase in the tax payable, and a sale of the property ending the option.

How does this fit with the 2026 relief changes?

HMRC’s August 2026 Trusts and Estates newsletter summarises the reforms. From 6 April 2026, 100% agricultural and business relief is limited to a £2.5 million allowance, with relief above that at 50%; any unused allowance can pass to a surviving spouse or civil partner; and unlisted shares such as those traded on AIM get relief at 50%. More estates holding businesses or farms will now have tax to pay, and the extension of interest free instalments to all qualifying assets is the main way to spread that tax over ten years. Our page on inheritance tax business relief covers the relief itself.

What happens if the asset is sold?

Under section 227(4), if all or part of the property is sold, the unpaid tax (or a proportionate part for a part sale) becomes payable at once with accrued interest. If the sale happens before the first instalment date, the tax is due on that date. Selling part of a business interest counts as selling part of the business, and a payout to a partner from a partnership, by agreement or otherwise, counts as a sale (section 227(6)). GOV.UK says executors must tell HMRC when they sell any assets on which instalments are being paid. Sales of inherited property and shares also raise capital gains questions; see selling inherited property. Section 227(4) does not apply to woodlands instalments under section 229.

A worked example

Illustration only. Tax of £80,000 is attributable to a house that the family intends to keep, and £100,000 to shares in the family trading company left after business relief. Interest is assumed at 8% a year for simplicity.

House (interest bearing) Company shares (interest free)
First instalment, paid on time £8,000 £10,000
Second instalment £8,000 plus interest on £72,000 for a year (£5,760) £10,000
Later years £8,000 plus interest on the falling balance £10,000

If the house is sold in year four, all the remaining house tax plus accrued interest becomes due immediately. The share instalments continue as long as the shares are kept.

What mistakes do executors make?

  • Assuming instalments on a house are interest free. They are not, unless relief reduces its value or it is part of a business.
  • Forgetting the option ends on sale, including on a partnership payout.
  • Paying an interest free instalment late, which triggers interest from the due date.
  • Putting instalment assets in column A, so the tax is treated as due before the grant.
  • Expecting quoted shares outside a control holding to qualify.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.