Inheritance Tax interest and late payment: rates and rules

When interest starts

The tax on a death is due six months after the end of the month in which the death occurs (IHTA 1984 s.226(1)). Any tax unpaid after that carries interest (s.233(1)(b)). In the words of HM Revenue and Customs (HMRC), interest runs "from the first day of the seventh month after the month in which the person died" (IHT400 Notes).

HMRC's IHT400 Calculation, the worksheet that comes with the form, makes three points. Interest is due even if probate (the court's grant that lets executors deal with the estate) has not been issued. It is due even if HMRC has not contacted you. And "Interest is not a penalty, it compensates the Exchequer for the delay in receiving the money due to it."

The current rate and how it is set

The rate is set by regulations under section 178 of the Finance Act 1989 (SI 1989/1297, reg. 4, as amended by SI 2025/386). It follows Bank Rate, the Bank of England's main interest rate:

• from 6 April 2025: Bank Rate plus 4%
• from 29 September 2009 to 5 April 2025: Bank Rate plus 2.5% (IHTM30341)

Bank Rate has been 3.75% since 18 December 2025, and HMRC's late-payment rate has been 7.75% since 9 January 2026. The rate changes when Bank Rate changes.

Interest that HMRC pays on overpaid tax, called repayment interest, is Bank Rate minus 1%, with a minimum of 0.5%. It has been 2.75% since 9 January 2026.

Recent rates

These come from HMRC's interest rates page and GOV.UK's Inheritance Tax interest rates page.

A known inconsistency in HMRC's material

The "Rates and tables" sheet that comes with the IHT400 (HMRC 08/25) still shows 8% from 27 August 2025 "to present". That figure has been superseded: HMRC's rates page and GOV.UK's Inheritance Tax interest page both show 7.75% from 9 January 2026. GOV.UK's table also gives 134 days for 27 August 2025 to 8 January 2026; counting both ends, as HMRC's method does, gives 135.

How HMRC works out the interest

HMRC's IHT400 Helpsheet, "Working out the interest on Inheritance Tax payments", gives three steps:

1. Count the days from the date interest starts to the date of payment, "including those 2 days themselves".
2. Look up the rate for that period.
3. Multiply the tax by the rate and by the number of days, then divide by 366.

HMRC divides by 366 in every year, not only leap years, and GOV.UK's "Calculate Inheritance Tax interest" tool uses the same method. Where the rate changes during the period, each part is worked out at its own rate and the results are added. In HMRC's examples, fractions of a penny are dropped.

HMRC's own Example 1 shows the method: tax of £5,000, with interest from 1 October 2004 to 14 December 2004 (75 days) at 4%. £5,000 × 4% × 75 ÷ 366 = £40.98.

On the IHT400 Calculation, the date interest starts goes in box 55. Interest on tax not paid by instalments goes in box 58, and interest on tax paid by instalments in boxes 59 and 61.

Worked examples

Example 1: one rate. Someone died on 17 January 2026, and the estate owes £50,000 of tax, due by 31 July 2026. It is paid on 30 September 2026.

One day's interest on £50,000 at 7.75% is £10.58.

Example 2: part paid on time. The same estate pays £40,000 on 31 July 2026, for instance as a payment on account while values are still being confirmed, and the remaining £10,000 on 30 September 2026. Interest is charged only on the £10,000: £10,000 × 7.75% × 61 ÷ 366 = £129.16, which is £516.67 less than in Example 1.

Example 3: a rate change. Someone died on 10 June 2025. The tax of £50,000 was due by 31 December 2025 and was paid on 31 March 2026.

Paying on account to stop interest

A payment on account is a payment made before the exact amount the estate owes is known (GOV.UK). HMRC's IHT400 Notes say: "If you think more tax will be payable, you can make a payment on account. If you do, we'll not charge you interest on the amount you've paid from the date we receive it." You need the Inheritance Tax reference number to pay, and GOV.UK asks you to get it at least 3 weeks before paying.

There is no discount for paying before the due date (IHTM30157). If more is paid than the final bill, HMRC refunds the excess with interest. Whether and when to pay on account is for the executors to decide. Other ways to raise the money are covered in paying Inheritance Tax before probate and IHT423 and the Direct Payment Scheme.

Interest on instalments

The tax on unsold land and buildings, including a house, can be paid in 10 equal yearly instalments (IHTA s.227). The first is due on the normal due date. For a house:

• there is no interest on the first instalment if it is paid on time;
• each later instalment carries interest on the whole unpaid tax for the year, plus interest on the instalment itself if it is paid late (s.227(3); IHTM30362).

Some instalments are interest-free if paid on time. For deaths from 6 April 2026 this includes value relieved by Agricultural Relief or Business Relief, and it also covers businesses and qualifying shares (IHTA s.234; IHTM30363).

For example, the tax on a house is £100,000, paid in ten instalments of £10,000. The first is paid on 31 July 2026. The second, due 31 July 2027, carries interest on the £90,000 still unpaid from 1 August 2026 to 31 July 2027. That is £90,000 × 7.75% × 365 ÷ 366 = £6,955.94 if the rate does not change, so £16,955.94 in all. If the house is sold, the outstanding tax and interest become payable (s.227(4)).

Repayment interest

If too much tax or interest is paid, the repayment carries interest from the date of payment until HMRC issues the repayment order (IHTA s.235(1)). The rate is Bank Rate minus 1%, with a 0.5% minimum: 2.75% since 9 January 2026.

This interest "shall not constitute income for any tax purposes" (s.235(2)). GOV.UK says HMRC refunds overpaid tax after probate. HMRC's manual says a repayment is not made if the claim comes more than four years after the payment (IHTM30402).

Penalties for a late IHT400

Interest and penalties are separate. The IHT400 is due within 12 months from the end of the month of death, or three months after the executors first act, if that is later (IHTA s.216(6)(a)). HMRC's form says "within 12 months of the date of death".

If the account is late, IHTA s.245 provides for:

• a penalty of £100;
• a further £100 if the account is still not delivered six months after the deadline and no court or tribunal proceedings have started;
• up to £60 a day, but only after a court or tribunal has declared the failure;
• up to £3,000 if the account is still not delivered a year after the deadline and there would have been tax to pay.

The two £100 penalties together cannot be more than the tax the executors are liable for, if they show what that is (s.245(5)). There is no penalty where there is a reasonable excuse, as long as the account is delivered without unreasonable delay once the excuse ends (s.245(7)). HMRC's notes summarise this as "a penalty up to £200", with "an additional penalty up to £3,000" if the delay extends another 12 months.

Penalties for errors in the account

A separate penalty can apply where an IHT400 contains an inaccuracy that leads to too little tax and was careless or deliberate (Finance Act 2007 Sch. 24 para. 1). The standard amounts are 30% of the "potential lost revenue" for careless action, 70% for deliberate but not concealed action, and 100% for deliberate and concealed action (para. 4).

Common mistakes

• Using the 8% "to present" figure from the older Rates and tables sheet instead of 7.75%.
• Counting days wrongly. Count both the first and the last day, and divide by 366.
• Using one rate across a rate change. Split the period at each change.
• Assuming interest waits for probate or for HMRC to make contact.
• Forgetting the yearly interest on house instalments.
• Confusing interest with penalties. Interest compensates for late money; penalties relate to a late or inaccurate account.

What happens next

After receiving the IHT400, HMRC "will work out how much tax is due, as well as any interest you may need to pay" and writes with its calculations (GOV.UK). HMRC does not send a receipt for each payment, but writes when all the tax and interest has been paid. For the boxes on the form itself, see how to fill in the IHT400.

Sources

• Inheritance Tax Act 1984, section 216: delivery of accounts
• Inheritance Tax Act 1984, section 226: payment, general rules
• Inheritance Tax Act 1984, section 227: payment by instalments
• Inheritance Tax Act 1984, section 233: interest on unpaid tax
• Inheritance Tax Act 1984, section 234: interest on instalments
• Inheritance Tax Act 1984, section 235: interest on overpaid tax
• Inheritance Tax Act 1984, section 245: failure to deliver accounts
• Finance Act 1989, section 178: setting of rates of interest
• The Taxes (Interest Rate) Regulations 1989 (SI 1989/1297), regulation 4
• The Taxes and Duties, etc (Interest Rate) (Amendment) Regulations 2025 (SI 2025/386)
• Finance Act 2007, Schedule 24, paragraph 1: error in taxpayer's document
• Finance Act 2007, Schedule 24, paragraph 4: standard amount
• GOV.UK: HMRC interest rates for late and early payments
• GOV.UK: Inheritance Tax thresholds and interest rates
• GOV.UK: Calculate Inheritance Tax interest
• GOV.UK: Pay your Inheritance Tax bill – pay early to avoid paying interest
• GOV.UK: Pay your Inheritance Tax bill – in yearly instalments
• GOV.UK: How to value an estate for Inheritance Tax and report its value
• HMRC: IHT400 Helpsheet, working out the interest on Inheritance Tax payments (HMRC 04/26)
• HMRC: IHT400 Calculation
• HMRC: IHT400 Rates and tables (HMRC 08/25)
• HMRC: IHT400 Notes, guide to completing your Inheritance Tax account (HMRC 04/26)
• HMRC Inheritance Tax Manual IHTM30341: interest, introduction
• HMRC Inheritance Tax Manual IHTM30157: payment before the due date
• HMRC Inheritance Tax Manual IHTM30362: instalments without interest relief
• HMRC Inheritance Tax Manual IHTM30363: instalments with interest relief
• HMRC Inheritance Tax Manual IHTM30402: repayments