Inheritance Tax Late Payment Rates Rise: The Implications
Following the Bank of England’s recent decision to increase the base rate, HMRC have announced that their late payment interest rate for inheritance tax will increase to 3.75% from 5 July 2022.
HMRC’s interest rate for the late payment of inheritance tax is tracked at 2.5% above the base rate. It is worth noting that the rate had been held at 2.6% since April 2020 until this year when it rose to 2.75% in January 2022.
Where property is involved, it is possible to pay inheritance tax in instalments, if the personal representative can show that paying in one lump sum will cause financial hardship under IHTA 1992 s 227(1).
The inheritance tax must be paid in 10 annual instalments, with the first instalment due at the end of the sixth month after the deceased’s death. Interest is not charged on the first instalment but on later instalments. Interest is charged on the total value of the outstanding tax as well as on any instalments that are not paid on time. Furthermore, if the asset which allows the inheritance tax to be paid in instalments is sold (e.g. house or unquoted shares) then the full outstanding balance of the tax must be paid. However, it is possible to pay the full inheritance tax due at any time, which may save the estate the additional expense of interest charges.
Individuals or families may wish to keep bank base rate and late payment rates under close review given there have been reports of the base rate potentially rising to 3% on growing inflation concerns. That could lead to a doubling of the cost of such arrangements!
Have a look at the latest HMRC rates here –