Inheritance Tax Late Payment Interest Rate Penalties To Increase Again

Many of you may be aware that when you file tax returns late, you get fined by HMRC.  This is the same for inheritance tax (IHT) returns and taxes due.  That said, if you have agreed to settle any IHT bill via instalments you will not be charged interest or late payment penalties.

HMRC will allow payments by instalments for difficult to realise assets such as if you decide to keep a property or cannot sell it for a period.  For example, if you decide to keep a property and live in it, 10% of the IHT bill must be paid and interest each year until the property is sold.

Interest Due When Paying Inheritance Taxes Late or Paying by Instalments

IHT interest rates were increased in January 2023:

• Late payment interest is charged by HMRC at 6% pa.
• Overpayment interest is paid by HMRC at 2.5% pa.

Given recent Bank of England interest rate increases, HMRC has confirmed that IHT interest rates will increase from 21 February 2023 as follows:

• Late payment interest charged by HMRC increases to  6.5% pa.
• Overpayment interest payable by HMRC increases to 3.0% pa.

Comment

It is to be expected that IHT interest rates have increased given the Bank of England rate increases.  The only issue we ever have with HMRC is the disparity between interest rates charged and interest payable by HMRC.  We understand HMRC wishes to encourage people to pay taxes on time with higher rates that than they pay out on but to be more than double for a ‘death tax’ we find distasteful.  Profiting on someone’s death from the late payment of taxes on wealth and assets that people have the deceased has already paid taxes on is simply disgusting.  We do mind paying taxes for the benefit and security of the country but paying tax when you die, we have always thought is poor form.