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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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Interest period: instalments with interest relief

Under IHTA84/S234 in some cases interest on each instalment is charged only from the date the instalment is payable. Thus each instalment is interest free if paid on or before the due date (IHTM30151).

In broad terms the categories of property that qualify for interest relief are:

  • control holdings of shares and securities (IHTM30217) or holdings of unquoted shares and securities (IHTM30216) unless they are in investment type companies falling within IHTA84/S105 (3)
  • businesses and interests in businesses (IHTM30214) (including partnerships)
  • land if its value is reduced by Agricultural Relief (IHTM24000) or is reflected in the value transferred by the transfer of a business or an interest in a business. Note that the land must be reflected in the value of the business or interest in a business. It is not sufficient that it is merely used in the business. Only the agricultural value of the agricultural property will qualify for interest relief - value over and above that will not qualify unless the land is a business asset and used for business purposes.

There are three circumstances when interest may become payable in respect of “interest free” instalments.

  • If an instalment is assessed late, interest will be payable

    • on the amount of the instalment
    • from the day after the due date to the date of assessment.
  • If there is an increase in the total tax payable on the property interest will be payable

    • on the increase in the amount of each instalment
    • from the day after its due date to the date of assessment.
  • If the property is sold (IHTM30321) and the instalment option ends, interest is payable from the day after the date of sale to the date of assessment.

There are separate instructions on how you should assess (IHTM31185) this.