IHT instalment options

Government announces extension to interest-free inheritance tax instalment option for all qualifying assets.

On 21 July 2025, the government published draft legislation to implement the changes to Business Property Relief (BPR) and Agricultural Property Relief (APR), announced in the Autumn budget. The draft legislation provides a significant extension to the instalment option for Inheritance Tax (IHT) and will provide a small comfort for many families and business owners looking to safeguard long-term assets across generations. However, for those business owners with non-qualifying assets, there could be a lot more in interest to pay if they elect for the instalment option to apply.

What’s changed?

£1 million allowance

The Government announced a new combined £1 million allowance for BPR and APR in their Autumn budget, set to be introduced in April 2026. The first £1 million of business and/or agricultural property will qualify for relief at 100%, meaning no IHT is payable. Any business and/or agricultural property in excess of the £1 million allowance will qualify for relief at 50%, which means IHT will be charged on those assets at a rate of 20% (rather than 40%). This means business and landowners are going to be facing some hefty tax bills. Please see our article here for a more in depth discussion on the £1 million allowance.

Interest free instalments

Under the current legislation, executors and trustees can choose to pay the tax owed on certain assets through a 10-year instalment plan. This means that the IHT is paid in 10 equal annual instalments.  The position has always been that IHT attributable to the value of assets that attract any APR can be paid in interest free instalments.  However, there is no blanket right to claim the instalment option for IHT on BPR assets and the interest free instalment option is only available when BPR at a rate of 100% is available.  Assets which qualified for 50% BPR under the current rules do not qualify for the interest free instalment option.

However, the latest government announcement confirms that this benefit will be extended. From April 2026, all property eligible for BPR or APR – whether at 100% or 50% relief – will qualify for the interest-free instalment payment option. Interest will only be payable if the instalment is paid late. This change aims to offer greater flexibility in estate planning and to reduce liquidity pressures during estate and trust administration.

Interest rates

With this small comfort, though, comes an increase in the interest rate if the interest free instalment option does not apply. If executors and trustees choose to pay IHT on certain non-qualifying assets by instalments, the interest rate on the instalment option is now 4% above the Bank of England base rate. This marks a significant rise for estates and trusts with non-qualifying assets.

Assets that qualify for the instalment option (but which do not qualify for APR or BPR) include:

• Shares held in an investment or property dealing company that is not trading (where the deceased had control or where other conditions are met)
• Commercial or residential property portfolios (if not considered to be a business or an interest in a business)
• Any other land and/or buildings not used in a qualifying trade or for agricultural purposes

This means that where estates and trusts are comprised of such assets, the executors and trustees must either ensure the estate or trust has enough cash or liquid investments available to settle the IHT liability in full upfront, or be prepared to pay a high interest rate if they choose the instalment payment route.

What are the implications of these changes?

For clients with qualifying BPR/APR assets, such as shares in trading companies, farmland, or agricultural buildings, or land and buildings used in the course of the business, the extension of interest free instalments is clearly positive news, albeit only a small comfort in light of all the other changes announced in the Autumn budget. However, the ability to pay IHT in interest-free instalments over 10 years can make estate and trust administration considerably more manageable, particularly where the assets are valuable but illiquid.

For clients with non-qualifying property or investment assets, the changes increase the cost of spreading the IHT payments and put greater pressure on the estate or trust to hold sufficient liquidity.

This could particularly affect those with diversified holdings, mixed property portfolios, and clients who own investment companies. It underlines the importance of reviewing estate planning in light of the changes to both the existing reliefs and payment of IHT.

You can find more information using the following sources –

• Draft legislation
• HMRC’s summary of the changes to APR and BPR
• HMRC’s current interest rates for late and instalment payments
• Family Business UK’s fiscal report on the economic impact of BPR reform

If you have any questions or we can assist, please contact any member of the Private Client team on 0113 244 6100.

You can also keep up to date by following Wrigleys Solicitors on LinkedIn.

The information in this article is necessarily of a general nature. The law stated is correct at the date (stated above) this article was first posted to our website.

Specific advice should be sought for specific situations. If you have any queries or need any legal advice please feel free to contact Wrigleys Solicitors.