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HMRC internal manual

Inheritance Tax Manual

Instalment offers: considering formal instalment arrangements

An instalment offer is subject to negotiation in the usual way. You must consider whether the proposed instalments are within the taxpayer’s capacity to pay, bearing in mind

  • the individual’s normal reasonable living expenses (which might, for example, be affected by impending retirement, a child ceasing to be dependent), and
  • any tax and National Insurance liabilities which will arise during the period of the instalment arrangement.

There is no point is asking a taxpayer to enter into an arrangement which is beyond that person’s means but equally you should try to avoid long repayment periods (IHTM36254).

Instalments should normally be payable monthly, but in exceptional cases (where the taxpayer can be relied upon to make the payments) you may agree to payments being made quarterly.

Where possible you should look for the instalment arrangement to include as large a down payment as the taxpayer can reasonably afford. This is because departmental experience suggests that a taxpayer who makes a substantial down payment is more likely to complete the arrangement. On the other hand, if the down payment has to be borrowed, the repayments will have to be taken into account when you are deciding what instalments the taxpayer can afford.

There may also be cases when you should encourage the taxpayer to depart from a pattern of equal, equally spaced instalments. This may arise where other existing commitments are cleared and the taxpayer is able to afford to pay increased instalments.

If the taxpayer is also having difficulty in paying the tax and interest you should consider consolidating all outstanding liabilities, whether culpable or not, and include them in the offer.