Payment of inheritance tax

Welcome to the Final Step: Paying the Bill!

You’ve learned how to calculate Inheritance Tax (IHT), but now comes the practical part: Who actually writes the check to HMRC, and when do they have to do it? This is a vital part of the ACCA TX syllabus because HMRC is very strict about deadlines. Don't worry if this seems like a lot of dates to remember—we’ve broken it down into simple rules and analogies to help you keep it all straight!

1. Who is Responsible? (The "Payer")

Think of IHT like a group dinner at a restaurant. Sometimes the person who ordered the meal pays, and sometimes the person hosting the party pays. In IHT terms:

For Lifetime Transfers (CLTs):

When a person makes a Lifetime Transfer (like a gift into a trust), the Donor (the person giving the money) is usually responsible for paying the tax. However, if the donor doesn't pay, HMRC will look to the Trustees (the people managing the gift) to pay it.

For Gifts Made Within 7 Years of Death:

If someone dies and their previous gifts (PETs or CLTs) suddenly become taxable because they didn't survive 7 years, the Donee (the person who received the gift) is normally responsible for the extra tax.
Common Mistake: Many students think the estate pays for everything after death. Remember: for gifts made while alive, the person who received the gift usually pays the "death tax" on it!

For the Death Estate:

The Personal Representatives (the people handling the will) are responsible for paying the tax on the assets left behind in the estate. They use the money from the deceased person's bank accounts or by selling assets to pay HMRC.

Key Takeaway: Generally, the person who has the assets or is receiving them is the one who pays the tax.

2. When Must the Tax be Paid? (Deadlines)

This is the most "testable" part of this chapter. The due date depends on when the transfer happened.

A. Death Estate

For tax due on the assets owned at the time of death, the deadline is:
6 months after the end of the month in which the death occurred.

Example: If Mr. X dies on 14 January 2024, the end of the month is 31 January. Six months later is 31 July 2024.

B. Lifetime Transfers (CLTs)

Lifetime transfers are a bit unique because the deadline depends on when in the year the gift was made. HMRC uses two "halves" of the year:

1. Gifts made between 6 April and 30 September: Tax is due on 30 April of the following year.
2. Gifts made between 1 October and 5 April: Tax is due 6 months after the end of the month of the gift.

Memory Aid: Think of the "Summer/Winter" rule.
- Summer gifts (April to Sept) get a long "holiday" and aren't due until the next April.
- Winter gifts (Oct to April) follow the standard "6-month rule."

Quick Review: The Due Dates

Death: 6 months after the end of the month of death.
CLT (April-Sept): 30 April following.
CLT (Oct-March): 6 months after the end of the month of gift.

3. Paying in Installments (The "Easy Payment Plan")

Sometimes, IHT is a huge amount, and the estate consists of "illiquid" assets (things that are hard to sell quickly, like a house). HMRC isn't heartless—they allow you to pay the tax in 10 equal annual installments for specific types of property.

Which assets qualify?

1. Land and buildings (houses, shops, etc.).
2. Business interests (a share in a partnership).
3. Controlling shares in a company.

Analogy: Imagine buying a very expensive car. You can't pay it all at once, so the dealership lets you pay over 10 years. HMRC does the same for houses because they know you can't just "cut off a bedroom" to pay the tax!

Important Point: If the asset is sold, the remaining unpaid installments must be paid immediately.

4. Interest on Late Payment

If you pay the tax late, HMRC will charge interest. This is simple interest (not compound) and starts accruing from the day after the tax was due.
Did you know? Interest paid on late IHT is not deductible for income tax purposes. It’s a pure cost to the person paying!

5. Summary Checklist

To master this chapter, always ask yourself these three questions when looking at a practice question:

1. Who is the person responsible? (Donor, Donee, or Personal Representative?)
2. When did the event happen? (Check if it's the 6-month rule or the 30 April rule.)
3. What is the asset? (Does it qualify for the 10-year installment plan?)

Key Takeaway: Accuracy is everything here. Getting a date wrong by even one day in your exam could lose you marks. Always count 6 months from the end of the month, not from the date of death itself!