HMRC Raises Interest on Unpaid Inheritance Tax

by Ridley & Hall in Inheritance Tax, Naha Ahmed, Wills posted May 15, 2025.

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HMRC Increases Interest Rates on Unpaid Inheritance Tax from 6 April 2025

As of 6 April 2025, HM Revenue & Customs raised the interest rate on unpaid Inheritance Tax (IHT) from 2.5% above the Bank of England base rate to 4% above the base rate. This adjustment means that the annual interest on overdue IHT will increase to 8.75%, based on the current base rate of 4.75%.

When does interest start?

In the UK, IHT is due by the end of the sixth month after the month of death.

Interest starts to accumulate on any unpaid IHT from six months after the death of the owner of the estate.

What does this mean for you?

It is essential to ensure that IHT is paid on time to stop interest accruing. There is an option to pay IHT on instalments however, only certain assets qualify to be paid in this way. These are Land and buildings (e.g. a house) shares in private companies and businesses or farms. The interest is calculated annually on the outstanding balance of what is due. Below is an example.

Say £100,000 of IHT is due on a house:

Lump sum payment: £100,000 (no interest if paid by the due date).
Instalments:
- Year 1: Pay £10,000
- Year 2: Interest on £90,000
- Year 3: Interest on £80,000

Although it can seem like paying in instalments is a good option short term, it is a more expensive option in the long run. Beneficiaries will not receive as much money from the estate as they will not only be paying the IHT, but they will also be paying the interest accumulated.

Paying IHT in instalments can increase the overall cost because HMRC charges interest on the unpaid balance. Due to the tight timescales this can cause an immense amount of pressure and stress for the executor dealing with the estate.

We understand that at a time when you have lost a loved one the last thing that you want to think about and try to deal with are financial matters. That is where Ridley & Hall are here to help.

By instructing our expert solicitors at Ridley & Hall you can avoid having to deal with the management of the estate as we will handle all of that for you!