Paying an Inheritance Tax Bill: The 10-Year Instalment Option and Other Ways to Fund It

An Inheritance Tax bill often needs to be paid before an estate’s assets - sometimes including the very property the tax is calculated on - can be sold or fully accessed, creating a genuine cash-flow problem for many families. None of the funding routes below change how much is actually owed - that’s determined separately by reliefs and exemptions, including leaving at least 10% of the estate to charity to secure a reduced 36% rate (see our dedicated article on charitable giving in your will). Here’s how it actually needs to be funded.

The basic timing problem

Inheritance Tax is generally due within six months of the end of the month of death, and at least some of it typically needs to be paid before the Grant of Probate is issued - but the Grant is often needed to sell the property or access many of the estate’s assets in the first place, creating a genuine chicken-and-egg problem for families without other readily available funds.

The 10-year instalment option

For certain assets - most importantly, land and property, and qualifying business or agricultural property (see our dedicated article on the new £2.5 million relief cap) - Inheritance Tax can be paid in equal annual instalments over 10 years, rather than as a single lump sum. From 6 April 2026, instalments are interest-free (unless paid late) for all assets qualifying for Agricultural or Business Property Relief, a genuinely valuable concession for families wanting to retain a farm or business rather than sell it to fund a lump-sum tax bill.

Interest still applies to instalments on most property (not agricultural/business)

For ordinary residential or investment property using the instalment option, interest is charged on the outstanding balance throughout the 10-year period, at a rate set by HMRC - this makes the instalment option a genuine cash-flow tool rather than a cost-free deferral for most property, distinct from the interest-free treatment specifically introduced for qualifying agricultural and business property from April 2026.

Paying directly from the deceased’s own accounts before probate

Banks and building societies can often release funds directly to HMRC from the deceased’s own accounts to pay an Inheritance Tax bill, even before the Grant of Probate is issued - using the ‘Direct Payment Scheme’ - which can solve the cash-flow problem for estates with sufficient liquid funds (savings accounts, for example) even if other assets like property remain illiquid until probate is granted.

Using life insurance specifically to fund an IHT bill

Some people take out a specific life insurance policy (sometimes called a ‘whole of life’ policy) during their lifetime, written in trust (see our dedicated article on why this matters), with the specific purpose of providing funds to cover an anticipated future IHT bill - since a policy written in trust pays out quickly and outside the estate, it can provide beneficiaries with cash to pay the tax bill without needing to wait for or rely on the estate’s other assets.

Beneficiaries funding the bill personally, then reimbursed from the estate

In some cases, beneficiaries choose to personally fund an IHT bill upfront (from their own savings) to speed up the process, with the expectation of being reimbursed once the estate’s assets are eventually realised - a practical option for families with the means to do this, though it requires trust and clear agreement among beneficiaries about the arrangement.

What happens if the estate genuinely can’t pay

If an estate has insufficient liquid assets and the instalment option and other routes still don’t solve the immediate cash-flow problem, HMRC can, in some circumstances, be approached directly to discuss the situation - but this is a complex area, and professional advice from a solicitor or accountant experienced in estate administration is strongly recommended rather than allowing the situation to drift, since interest and potential penalties accrue on unpaid IHT regardless of the underlying cash-flow difficulty.

The bottom line

An Inheritance Tax bill often needs to be at least partly funded before an estate’s main assets can be accessed, but genuine options exist - the 10-year instalment plan (now interest-free for qualifying agricultural and business property), direct payment from the deceased’s own accounts, and life insurance specifically arranged for this purpose are all worth understanding and planning around, rather than assuming the full bill must be found immediately from elsewhere.