Comparison Β· 2026/27
IHT Instalment Option vs Lump Sum Payment
Executors facing a large Inheritance Tax bill on a property-heavy estate can spread payment over ten years using the instalment option, or pay the full amount upfront. Each route has a different cash-flow and interest cost trade-off. This guide compares both.
At a Glance
| Feature | Instalment Option | Lump Sum Payment |
|---|---|---|
| Payment period | 10 equal annual instalments | Paid before/at probate |
| Qualifying assets | Land, buildings, some business/company shares | Any asset |
| Interest charged? | Yes, on outstanding balance (HMRC rate) | No β paid in full |
| Cash-flow pressure | Low β spread over time | High β needed before probate |
| Effect of early asset sale | Remaining tax usually due immediately | N/A β already paid |
Interest rates on deferred IHT instalments are set by HMRC and change periodically β confirm the current rate on gov.uk before relying on it for cash-flow planning.
How the Instalment Option Works
For qualifying assets β mainly land, buildings, and some business or company shares β executors can elect to pay the Inheritance Tax attributable to those assets over 10 equal annual instalments rather than in a single payment. This is particularly useful when the estate\'s wealth is tied up in an illiquid asset like a house, which cannot easily be sold before probate is granted.
Interest accrues on the outstanding balance at the rate HMRC sets, adding to the overall cost of the tax over time. If the qualifying asset is sold before the ten years are up, any remaining tax is usually due immediately from the sale proceeds, ending the instalment arrangement early.
How Lump Sum Payment Works
Where the estate has sufficient liquid funds β from bank accounts, investments, or life insurance proceeds β executors can pay the full Inheritance Tax bill upfront, often using HMRC\'s Direct Payment Scheme to draw funds directly from the deceased\'s accounts before probate is granted, without needing a probate loan or bridging finance.
Paying in full avoids any ongoing interest charge on deferred tax and simplifies the administration of the estate, since there is no ongoing HMRC charge or instalment schedule to track over the following years. This is usually the cheaper route overall if liquidity genuinely allows it.