IHT relating to land, certain shares and securities and business assets can, in certain instances, be paid by instalments. Land in the context of this relief can be of any description, situated anywhere in the world. The most common instance where this relief will be relevant and claimed is in respect of a transfer which is made on death.
Where the appropriate conditions are met, the person who has to settle the IHT liability may, ‘by written notice to HM Revenue and Customs’, elect to pay the IHT by ten equal instalments. In practice, the payment by instalment relief is claimed by ticking the relevant box in the form IHT400. The first instalment is due on the normal payment date and interest accrues on the unpaid portion from that date. The current rate of interest for IHT is 3% and the interest is paid annually with the subsequent instalment. Most instalments will be interest bearing, however there are some instances where there is no interest payable on instalments (primarily in relation to shares in trading companies, business interests or indeed any Agricultural Property Relief (APR) land) unless these instalments are paid late.
As you would expect, if the asset on which the IHT is being paid by instalments is sold by the recipient, or transferred out of a trust in those circumstances where the trust was claiming the instalment payment relief, then the remaining IHT falls due for payment immediately, together with any accrued interest from the last payment date.
Although this relief will most often be claimed in respect of property and particularly the family home, the share relief should not be overlooked. It may be possible to pay IHT by instalments on shares or securities if, at the time of death, the shares or securities enabled the deceased to control the majority (more than 50 per cent) of a company’s voting powers.
You can also pay IHT by instalments on unlisted shares or securities in any of the following cases:
- they are worth more than £20,000 and they represent at least 10 per cent of the ‘nominal’ value of the company’s share capital, or at least 10 per cent of the nominal value of the company’s ordinary share capital if they are ordinary shares; or
- at least 20 per cent of the IHT owed by the person liable for the tax must be owed on assets that qualify for payment by instalments, including the shares or securities in question; or
- you are able to show that the IHT on the shares or securities could not be paid in one lump sum without causing undue hardship.