IHT Payment Options - Comparison for Executors
| Option | How it works | Cost | When it works | When it does not |
|---|---|---|---|---|
| HMRC Direct Payment Scheme | Banks release deceased's account funds to HMRC before probate. | No finance cost - estate funds used. | Estate has sufficient bank cash. | Property-rich, cash-poor estates. |
| HMRC instalment option | Pay IHT in 10 annual instalments on qualifying property assets. | 7.75% p.a. interest on outstanding balance. | Property that should not be sold urgently. Long-term estates. | Pension assets, trust assets, overseas property (not eligible). |
| HMRC grant on credit | HMRC lends estate the IHT - repayable when property sold. | Initially interest-free; HMRC rate applies if not promptly repaid. | Directly-held UK property. Since April 2024 - no need to seek commercial loans first. | Trust assets, pension pots, overseas property, business assets. |
| Bridging loan (estate property) | Executor borrows against estate property; repays from sale post-probate. | 0.65%-0.80%/month + arrangement fee + legal (est. £10,000-£40,000 on £200k bridge, 12 months). | All asset types. Fast. Certain. | No suitable property security; executor unwilling to arrange commercial borrowing. |
Indicative rates - August 2026. Rates change daily. Actual rate depends on LTV, security, credit profile, loan size, and exit strategy. Contact our team for a live rate comparison for your specific case. All rates sourced from lender product sheets and publicly available market data.
What determines your rate
April 2026 - pensions enter the IHT estate: Defined contribution pension pots are now included in the IHT estate from April 2026. Previously IHT-exempt, pension funds now add to the taxable estate. A person with a £400,000 DC pension and an estate otherwise at the threshold faces £160,000 additional IHT from April 2026. The pension cannot directly pay the IHT - it is invested until distributed - creating a cash gap that bridging resolves.
Business and agricultural property relief - £1 million cap: From April 2026, Business Property Relief and Agricultural Property Relief are capped at £1 million per estate. Estates that previously relied on 100% BPR/APR for full exemption may now face IHT on the value above £1 million. Family farms and business-owning estates face materially higher IHT liabilities from April 2026.
Step-by-step for executors: (1) Obtain HMRC IHT reference (form IHT422). (2) Complete IHT400 estate valuation. (3) Pay IHT within 6 months - using Direct Payment Scheme, HMRC grant on credit, instalment option, or bridging. (4) Apply for grant of probate after IHT payment confirmed. (5) Administer estate and repay any borrowing from estate proceeds.
Working with the estate solicitor: IHT bridging is almost always managed alongside the estate solicitor who confirms executor authority and manages the HMRC payment. DBF works with all reputable estate solicitors. The executor's solicitor cannot act for the bridging lender - a separate bridging solicitor handles the loan documentation.
Worked cost example
- Estate: Property £620,000 + BTL £280,000 + DC pension £350,000 + ISAs £45,000.
- Total estate: £1,295,000. Thresholds: NRB £325,000 + RNRB £175,000 = £500,000.
- IHT on pension (April 2026 - new): £350,000 × 40% = £140,000.
- IHT on property excess: (£945,000 − £500,000) × 40% = £178,000.
- Total IHT: £318,000. Deadline: 6 months from death.
- IHT bridge: £318,000 secured on residential property (£620,000) + BTL (£280,000).
- Combined LTV: £318,000 / £900,000 = 35.3%. Rate: 0.68%/month. Term: 18 months.
- Estimated total cost: ~£40,000 (interest £29,200 + fees £9,000 + legal £1,800). Repaid from BTL sale post-probate.
- HMRC INTEREST if IHT paid 3 months late: £318,000 × 7.75% × (90/365) = £6,063.
- HMRC INTEREST if paid 6 months late: £318,000 × 7.75% × (180/365) = £12,127.
- NET SAVING vs 3-month late HMRC: Bridge (£40,000) costs £33,937 more than HMRC interest alone.
- NET SAVING vs 12-month late HMRC: Bridge (£40,000) vs HMRC (£24,645/year). Bridge is comparable at 15+ months.
- KEY BENEFIT: Bridge guarantees IHT paid on time - probate proceeds on schedule. Late IHT blocks probate for months, preventing estate sale and distribution. The consequential costs to beneficiaries often exceed the bridge interest differential.
Rate context and outlook
The April 2026 pension and BPR/APR changes are the biggest IHT reform in decades. Estates that previously required little or no IHT planning now face significant liabilities. Solicitors and financial planners handling estates should review all cases affected by these changes. DBF handles IHT bridging sensitively and at speed - contact us as soon as the IHT liability is established.