Inheritance tax question - re paying via 10 yearly instalments and late payment interest

conanthex

I'm really confused about something. If someone chooses to pay inheritance tax in ten yearly instalments, for example, if they have a house to sell and it will take time to sell, is the interest on the instalments (currently 8.25%) only charged if any of the 10 instalment payment is late or is it added each year (i.e. is paying in instalments defined as late payment)?

For example, if someone has a £200,00 in inheritance tax bill and chooses to pay this over 10 years - they pay the first £20k at the sixth month anniversary of the death, so they owe £180k over another 9 yearly instalments, paying £20k per year. Does the 8.25% interest only get charged if they are late to pay the next of the 9 instalments, so in effect they have a year to find the next £20k to pay the next instalment without accruing the 8.25% late payment interest or is the late payment interest added to the whole of the remaining £180k until it is paid off, so 40% plus 8.25% each year? It's really unclear. 

What I am asking is whether someone can pay off £200k inheritance tax bill over 10 yearly instalments without paying the 8.25% late payment interest if they pay each £20k instalment on time each year, so the inheritance tax due is never over £200k?

I hope this makes sense?

JGB1955

You will not pay any interest on the first instalment unless you pay late. On each later instalment you must pay interest on both of the following:

• the full outstanding tax balance
• the instalment itself, from the date it’s due to the date of payment (if it’s paid late)

see Pay your Inheritance Tax bill: In yearly instalments - GOV.UK

Keep_pedalling

It is charged on the outstanding amount. Failing to make the annual instalments will also result in penalties on top of the interest. In the situation you describe the correct course of action is to pay off the lot as soon as the house is sold not to carrying pay that sort of interest for 10 years.