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HMRC internal manual

Inheritance Tax Manual

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HM Revenue & Customs
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Assessing: calculating interest: IOP cases

When instalments are due, you charge tax on only the instalments that are due at the date (IHTM31187) of the calculation.

But, interest is payable on the entire outstanding balance from the due date. The interest on the full balance is payable in arrears.

First instalment

When you raise a calculation for the first instalment, charge interest on

  • that instalment only
  • from the due date, to the date of payment (or the date of calculation)

Second instalment

When you raise the calculation for the second instalment, you need to bring into account the arrears of interest on the outstanding balance. So you should charge interest

  • on that second instalment (if appropriate) only - from the date it is due to the date of payment (or date of calculation), and
  • on the whole of the tax outstanding between the due date of the first instalment and the due date of the second (in effect, for one year).

Later instalments

When you calculate the next instalment, charge interest

  • on that third instalment (if appropriate) only, from the date it is due to the date of payment (or date of calculation), and
  • on the whole of the tax outstanding from the day after the due date of the second instalment to the due date of the third (in effect, for one year).

Calculate the subsequent instalments in the same way.

Example

1st instalment due 30 September 2011. Calculation for the 1st instalment paid 5 October 2011.

2nd instalment due 30 September 2012

You raise a calculation for the second instalment on 1 December 2012 and charge interest:

  • On tax now payable (the second instalment only)
  • From 1 October 2012 to 1 December 2012

(this is box 1 interest)

  • On the tax unpaid (the total amount of tax, less the first instalment
  • From 1 October 2011 to 30 September 2012

(this is box 2 interest)

The calculation is paid quickly.

3rd instalment due 30 September 2013

You raise a calculation on 30 September 2013 and charge interest

  • (no interest on tax now payable as the third instalment is not late)
  • on tax unpaid (the total amount of tax, less the 2 instalments that have been paid)
  • From 1 October 2012 to 30 September 2013.