Inheritance tax question

Mrs_Bargain_Hunter

i have had a query from a friend and she's rung HMRC three times but not got an answer.

 i have 500k to pay in 10 instalments over 10 years.

There is interest to pay on the instalments

I have paid the first instalment 50K, but not the interest due with the first instalment, which is around 40K.

If I pay more, before the next instalment is due, what effect does that have on the total that I will end up paying, does it decrease or is it unaffected?

If it is unaffected, it seems there is no point in repaying earlier.

poseidon1

Your friend seems to have taken an extremely long time to be assessed on the 1st instalment.

The 1st instalment is due 6 months after death, and only if paid after that date will there be any interest arising. See guidance below :

https://www.gov.uk/paying-inheritance-tax/yearly-instalments

For £40k interest to arise on only £50k 1st instalment means there were problems agreeing the IHT due and years passed before the instalment assessment was raised.  

Refusal to pay the interest charge will make your friend delinquent with HMRC, penalties may arise and worse case scenario HMRC's debt management office get involved potentially leading to cancellation of instalment  option and proceedings to recover the entire liabilty.

Your friend should also be aware that the interest calculation on the 2nd Instalment is on the liabilty after deducting £50 k  instalment paid ie £450k. Therefore interest is already running at 7.75% on this amount. If the rate remains unchanged that could easily trigger additional interest for the year exceeding £34k. An accumulating debt mountain.

I would have expected with such a large IHT bill, your friend was professionally advised, if not then she should  urgently seek advice from a Chartered tax accountant who can review the current arrangements and reccomend appropriate course of action to avoid your friend getting into very hot water with HMRC.