Paying inheritance tax before probate: how executors fund the bill

Here is a situation that catches out more families than almost any other part of inheritance tax. The tax has to be paid before the executors can get the grant of probate. But without the grant, most of the money in the estate is locked away. The bank will not release the savings, the house cannot be sold and the business shares cannot be transferred. The bill is real, the deadline is real, and the money to pay it is sitting behind a door that only opens once the bill is paid.

Executors call it a catch-22, and they are right. The good news is that there are well-worn ways through it — and, for anyone planning ahead, ways to make sure the people you leave behind never face it at all.

What the rules actually say

Inheritance tax on an estate is due by the end of the sixth month after the month of death. If someone dies on 12 January, the tax is due by 31 July. That is the payment deadline, and it arrives well before most estates are anywhere near being wound up.

Miss it and HMRC charges interest on whatever remains unpaid. The late payment interest rate for inheritance tax is currently 7.75% a year, the rate that has applied since 9 January 2026. It moves with the Bank of England base rate, so it is worth checking the HMRC rates page at the time, but on a six-figure bill it adds up quickly.

In England and Wales, executors usually need to make a payment towards the inheritance tax before they can apply for probate. HMRC then issues a code that allows the probate application to go ahead. So the order is fixed: tax first, grant second, access to the estate third.

One practical detail that trips people up: executors need an inheritance tax payment reference number from HMRC before they can pay, and HMRC asks for this to be requested at least three weeks before the payment is made. It is not something to leave until the final week of month six.

The four main ways the bill gets paid

1. The Direct Payment Scheme

This is the most useful tool most executors have never heard of. Under the Direct Payment Scheme, banks, building societies and many investment providers — including NS&I — can pay inheritance tax straight to HMRC from the deceased’s own accounts, before probate has been granted.

The executor asks each provider to recognise them as personal representative, obtains the payment reference, and sends form IHT423 to each bank or provider, one form per account. The IHT400 inheritance tax account goes to HMRC at the same time. The provider then transfers the money directly. Not every institution takes part, and each has its own process, so it pays to start early.

2. Paying in yearly instalments

For certain assets that take time to sell, the tax can be paid in ten equal yearly instalments rather than in one lump sum. The executors elect for this on the IHT400. The first instalment falls due on the normal six-month date and the rest follow on the same date each year.

The assets that qualify are:

• Land and buildings — including houses and let property, as long as they are not sold.
• Anything qualifying for Business Relief or Agricultural Relief — including the part of a business interest above the £2.5 million allowance that receives 50% relief.
• Shares or securities that gave the deceased control of a company.
• Certain unlisted shares worth more than £20,000 that meet HMRC’s size tests, or where paying in one go would cause genuine hardship.

Whether interest is charged depends on the asset. For deaths from 6 April 2026, instalments on assets qualifying for Business Relief or Agricultural Relief are interest-free, provided each one is paid on time. For other qualifying assets — a let property, for example — interest runs on the whole outstanding balance, not just the instalment being paid. And if an asset is sold, the remaining tax on it becomes payable straight away.

3. Borrowing or selling

Some families bridge the gap with a loan to the executors, or a beneficiary pays the tax from their own funds and is reimbursed once the grant is issued. Where an asset has to be sold, it can often be marketed during the administration, but the sale itself usually cannot complete until probate is granted. None of this is ideal: loans carry interest and arrangement fees, and a forced sale on a deadline rarely achieves the best price.

4. Asking HMRC to wait

Where the estate’s funds genuinely cannot be reached and there is no other way to pay, executors can ask HMRC to postpone some or all of the tax until after the grant — sometimes called a grant on credit. HMRC expects the tax to be paid as soon as possible once the grant is issued, and it is a request, not an entitlement.

A worked example

This is an illustration with invented figures, not a real client. Take a Sussex couple, Margaret and Peter. Peter died some years ago, leaving everything to Margaret, so none of his allowances were used. Margaret has now died. Her estate is made up of the family home worth £900,000, three buy-to-let flats worth £750,000 and savings of £150,000 — £1.8 million in total.

Because the estate is under £2 million and the home passes to their children, Margaret’s executors can claim both nil-rate bands and both residence nil-rate bands: £1 million in all. The remaining £800,000 is taxed at 40%, giving a bill of £320,000, due within six months.

The savings can go to HMRC through the Direct Payment Scheme, which clears £150,000. That leaves £170,000 to find. The house and the flats are land and buildings, so the tax on them can be paid by instalments — but because none of them qualify for Business Relief, interest at 7.75% runs on the outstanding balance each year. Over ten years that interest becomes a significant extra bill. And the moment the executors sell a flat to raise money, the tax on that flat falls due in full.

The family can make it work. But they are working to HMRC’s timetable, paying interest, and making decisions about property under pressure.

The traps to watch

• Leaving it late. The payment reference alone needs three weeks. Valuations, bank paperwork and the IHT400 all take time.
• Assuming instalments are free. For let property and other non-business assets, interest runs on the full outstanding balance.
• Selling while paying by instalments. A sale brings forward all the remaining tax on that asset.
• Investment property companies. A company that mainly holds let property does not normally qualify for Business Relief. A controlling holding may still allow instalments, but interest will usually be charged.
• Pensions from April 2027. Unused pension funds come within inheritance tax from 6 April 2027. For many estates that means a larger bill, with the six-month clock ticking just the same.

What to do now

The real answer to the catch-22 is not found after death. It is found in the planning beforehand.

Life cover written in trust. A policy written in trust sits outside the estate, so it is not taxed and does not need the grant of probate to pay out. The trustees can receive the money and make it available for the tax bill. For couples, a joint policy paying out on the second death — when the bill usually lands — is common. The key is sizing the cover to a realistic estimate of the likely tax and reviewing it as values change.

Liquid funds in the right place. Savings and investments held with providers that take part in the Direct Payment Scheme give executors something to pay with on day one.

Business Relief, properly structured. For trading business owners, qualifying shares can pass with 100% relief up to the £2.5 million allowance from April 2026, with 50% relief above it, and the tax on that excess can be paid in interest-free instalments. That only works if the business genuinely qualifies and the Will passes the shares in the right way.

A number you can plan around. Most families have never actually worked out what the bill would be. Once you know the figure, you can decide how it will be funded — rather than leaving your executors to find out under a six-month deadline.

In short

Inheritance tax is due before your family can reach the money to pay it. There are routes through — the Direct Payment Scheme, instalments, loans, and asking HMRC to wait — but each one is a workaround. The better answer is a plan made now, with the money ready and waiting for the day it is needed.

If you would like to know roughly what your estate’s bill might be and how it could be funded, book a Discovery Call with me. It takes 30 minutes, the fee is £30, and that fee is credited against your fees if you go on to instruct us.