Inheritance Tax
Inheritance Tax & Probate
Inheritance tax must be paid before probate is granted — but the estate's assets are frozen until probate. Understanding how to navigate this “chicken and egg” problem is essential for every executor.
Key Figures
Inheritance Tax at a Glance
Nil-Rate Band
£325,000
Tax-free threshold per individual. Estates below this pay no IHT.
IHT Rate
40%
Standard rate on the taxable estate above the nil-rate band.
Residence NRB
£175,000
Additional allowance when leaving your home to direct descendants.
Payment Deadline
6 months
IHT must be paid within 6 months of the end of the month of death.
The Core Challenge
The “Chicken and Egg” Problem
The most frustrating aspect of the inheritance tax and probate process is the circular dependency between the two. The probate registry will not issue the Grant of Probate until inheritance tax has been paid. But the estate's assets — including bank accounts — are frozen until the grant is issued.
This means executors cannot simply access the estate's funds to pay the tax bill. They must find another way to fund the payment — whether through the Direct Payment Scheme, a probate loan, or family contributions.
The good news is that the Direct Payment Scheme — which allows banks to pay IHT directly to HMRC from the deceased's accounts — resolves this problem for most estates. Most major UK banks participate in the scheme.
The Circular Problem
Probate registry requires IHT to be paid before issuing the grant
Estate assets (including bank accounts) are frozen until the grant is issued
Solution: Direct Payment Scheme — bank pays HMRC directly from frozen accounts
Reducing the Bill
Calculating the Tax-Free Estate
Before calculating the IHT bill, executors must identify all available reliefs and deductions. These can significantly reduce — or even eliminate — the taxable estate.
Nil-Rate Band (£325,000)
Every individual has a £325,000 nil-rate band — a threshold below which no IHT is charged. If the first spouse leaves everything to the survivor, their unused nil-rate band can be transferred, giving the surviving spouse up to £650,000 tax-free.
Residence Nil-Rate Band (£175,000)
An additional £175,000 allowance applies when you leave your main residence to direct descendants — children, stepchildren, or grandchildren. This is also transferable between spouses, allowing couples to shelter up to £1 million.
Debts and Funeral Expenses
Outstanding debts — mortgages, credit cards, personal loans — and reasonable funeral expenses are deducted from the estate's value before IHT is calculated. This can significantly reduce the taxable estate.
Spousal Exemption
Assets left to a surviving spouse or civil partner are completely exempt from IHT — with no upper limit. This defers the IHT problem to the second death, when the full combined estate is assessed.
Paying the Bill
How to Pay IHT When Accounts Are Frozen
Four options are available to executors who need to pay inheritance tax before probate is granted.
Direct Payment Scheme
Most major UK banks will pay IHT directly to HMRC from the deceased's accounts before probate is granted. The executor instructs the bank using form IHT423. This is the most straightforward solution for estates with sufficient liquid assets.
Probate Loan
Specialist lenders advance funds to pay the IHT bill, secured against the estate. The loan is repaid once probate is granted and the estate's assets can be accessed. Interest accrues during the loan period.
Instalment Option
IHT on certain assets — including property, business assets, and unlisted shares — can be paid in 10 annual instalments rather than as a lump sum. Interest accrues on the outstanding balance. This eases cash flow but extends the overall cost.
Family Contribution
Beneficiaries can contribute funds to pay the IHT bill before probate is granted, to be reimbursed from the estate once the grant is issued. This requires careful documentation to avoid disputes.
Executor Roadmap
5-Step Roadmap: IHT to Probate
Follow these five steps to navigate the inheritance tax and probate process efficiently.
Value all assets
Obtain a professional valuation of all assets — property, investments, business interests, and personal possessions. Use open market value at the date of death. Undervaluing assets can result in HMRC penalties.
Calculate the taxable estate
Deduct outstanding debts, funeral expenses, and any applicable reliefs (spousal exemption, nil-rate band, residence nil-rate band, business property relief, agricultural property relief) from the gross estate value.
Pay the IHT bill
Submit the IHT400 to HMRC and pay the tax due — using the Direct Payment Scheme, a probate loan, or family funds. IHT must be paid within 6 months of the end of the month of death to avoid interest charges.
Apply for probate
Once HMRC confirms receipt of the IHT payment (or confirms the estate is excepted), apply for the Grant of Probate or Letters of Administration via the HMCTS probate portal. Include the IHT reference number in the application.
Distribute the estate
Once the grant is issued, use it to access the estate's assets, settle any remaining debts, and distribute the inheritance to beneficiaries in accordance with the Will or intestacy rules.
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Common Questions
Frequently Asked Questions
Do I have to pay inheritance tax before probate is granted?
Yes. Where inheritance tax is due, it must be paid — or at least substantially paid — before the probate registry will issue the Grant of Probate. This creates the "chicken and egg" problem: assets are frozen until probate is granted, but tax must be paid before probate. The Direct Payment Scheme and probate loans are the main solutions.
What is the Direct Payment Scheme?
The Direct Payment Scheme allows executors to instruct the deceased's bank to pay inheritance tax directly to HMRC from the estate's accounts — without the executor needing to access the funds personally. Most major UK banks participate. The executor completes form IHT423 and sends it to the bank, which transfers the funds directly to HMRC.
What happens if I cannot pay the IHT before probate?
If the estate lacks sufficient liquid assets to pay the IHT bill, options include: using the Direct Payment Scheme (if the bank holds sufficient funds), taking out a probate loan, asking beneficiaries to contribute temporarily, or using the instalment option for property and certain other assets. A probate solicitor can advise on the most appropriate solution for your circumstances.
What is the IHT400 form?
The IHT400 is the full inheritance tax account form submitted to HMRC where the estate exceeds the IHT threshold or does not qualify as an excepted estate. It requires a detailed breakdown of all assets, liabilities, and reliefs claimed. HMRC currently takes 8–12 weeks to process IHT400 forms, which is the main cause of probate delays.
What is an excepted estate?
An excepted estate is one that does not require a full IHT400 to be submitted to HMRC. Most straightforward estates where the total value is below the nil-rate band (£325,000) qualify as excepted estates. Executors of excepted estates complete a simpler IHT205 form instead. The probate registry processes excepted estate applications faster.
When must inheritance tax be paid?
Inheritance tax must be paid within 6 months of the end of the month in which the death occurred. For example, if the death occurred on 15 March, the IHT deadline is 30 September. Interest accrues on unpaid IHT from the deadline date. HMRC can also charge penalties for late payment.
Can I reduce the inheritance tax bill after death?
Yes. A deed of variation allows beneficiaries to redirect their inheritance within two years of the death — for example, to a surviving spouse (to use the spousal exemption) or to charity (to reduce the IHT rate to 36%). Deeds of variation are a powerful post-death planning tool and can significantly reduce the IHT liability.
What is the IHT rate on charitable gifts?
If at least 10% of the net estate is left to charity, the IHT rate on the remainder of the estate reduces from 40% to 36%. This can make charitable giving financially advantageous — the estate pays less tax, and the charity receives a significant gift.
Does inheritance tax apply to jointly owned property?
Yes. Property owned as tenants in common is included in the deceased's estate for IHT purposes — only their share is assessed. Property owned as joint tenants passes automatically to the surviving owner by right of survivorship and is not included in the estate for probate purposes, but it is still assessed for IHT.
What is business property relief?
Business property relief (BPR) provides up to 100% relief from IHT on qualifying business assets — including shares in unlisted companies, interests in business partnerships, and certain business property. Agricultural property relief (APR) provides similar relief for qualifying agricultural land and property. Both reliefs can significantly reduce the IHT liability for business owners and farmers.
Our Probate Team
Speak to a Member of Our Team
Nikolina Vukovic
Legal Executive — Wills, Trusts & Estates
Nikolina specialises in probate, wills, trusts and estate administration. She supports clients through what is often one of the most difficult periods of their lives — from straightforward administrations to complex estates involving property, inheritance tax and sensitive family circumstances.
Darren Steele
Senior Private Client Executive · STEP Member
Darren has worked in the legal sector since 1998 and has been a STEP member since 2011. He specialises in wills, trusts, lasting powers of attorney and probate — with particular expertise in inheritance tax planning and complex estate structuring.
Laura Kirton
Wills & Probate Solicitor · 10 Years Qualified
Laura is a qualified solicitor with ten years' post-qualification experience, specialising in wills, probate, and lasting powers of attorney. Known for her calm, methodical approach, she brings both legal expertise and genuine insight to every matter — particularly in emotionally complex family situations.
David Stahler
Wills, Trusts & Estates Executive
David is our first point of contact for clients enquiring about probate and estate planning. He brings a warm, personable approach to what can be a sensitive subject — and clients consistently remark on how at ease he makes them feel. Discreet, approachable, and thorough.
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