New IHT Legislation & Instalments: A focus on the position of Personal Representatives

Changes to Inheritance Tax Reliefs

As highlighted by my colleagues in a recent article in our series on the impact of changes to business property relief (BPR) and agricultural property relief (APR) which come into effect from 5^th April 2026, the availability of interest-free instalments will be significant in how future inheritance tax (IHT) liabilities are managed and settled.

These prospective long-term payment plans bring into sharp focus the issue of who is actually responsible for payments of IHT across this 10-year period and highlights how important it is to consider who your personal representatives (PRs) will be and for those appointed, to be aware of how long their responsibilities may last beyond the administration of the estate. 

Liability for tax v burden of tax 

It is key to remember that there is a distinction between the “liability” to pay IHT and the “burden” of it.  

HMRC will look to the PRs to pay the IHT (i.e. they bear the liability), but who suffers the burden of it in the form of a reduction in their entitlement under the Will depends on its terms; crucially, they are often not the same people.  

Further, PRs are not only liable for paying IHT on the estate assets but have a potential secondary liability to pay any IHT on lifetime gifts (including transfers into trusts) which remain unpaid by the recipient of such gifts 12 months after the date of death.  

How IHT is paid 

On death, the deceased’s assets and lifetime gifts are valued and the IHT liability calculated.  The PRs will submit the IHT return to HMRC and pay whatever IHT is payable at that stage and claim the instalment option as appropriate.  There will therefore be some degree of clarity on the IHT liability at this stage.  

However, from April 2026 and where relevant values exceed the £1m cap, asset valuations will be subject to greater review by HMRC given IHT will be at stake.  Therefore, the IHT liability may change (potentially significantly) before it is finally agreed with HMRC.  So, even in a case where the PRs decide not to use the instalment option and pay IHT in one go, it may be some time before their liability is finally ascertained. 

Paying by instalments 

The ability to pay IHT by instalments on certain land and business interests is longstanding and whilst interest-free instalments have always been available for land attracting only 50% APR, this was not relevant to many estates.  More broadly (in relation to other asset types) the instalment option is less attractive due to the additional cost of interest charged on outstanding IHT and in such cases other estate assets are often used to settle the whole of the IHT liability, with some limited use of the instalment option for cash flow purposes. Therefore, relatively few estates have used the instalment option for the full 10-year period.  Looking forward, the wider application of interest-free instalments will be a much more attractive, and for some businesses essential, option for land and business owners to spread the burden of the IHT.   

Protecting PRs 

HMRC will look to the PRs for payment of both additional IHT, if valuations take time to agree and trigger additional tax liability, and any IHT paid by instalments, so they need to ensure they hold or have proper recourse to sufficient funds or assets to meet those payments.  

There are a number of practical concerns with this:

• The appropriation or assent of assets to beneficiaries does not serve to pass the liability for the IHT to the beneficiaries – the PRs remain liable for the tax even if they don’t have any assets to pay it from.
• Any indemnities given by beneficiaries to the PRs in respect of further IHT will only be as good as the beneficiaries’ ability to pay.  HMRC will still look to the PRs initially and it would be for the PRs to seek reimbursement under the indemnity.
• Where the assets include land/buildings then it may be possible for the PRs to take a charge over them to protect their position.  That will add an additional layer of complexity and cost, especially if such assets are already charged or may need to be charged in the future, for example to cover bank borrowing.
• The IHT is calculated on the value of assets as at the date of death.  Save for some limited provision to reclaim some IHT within certain time frames (where the value of land and investments on sale has fallen as against the value at death), IHT generally takes no account of any drop in value of assets post death.  This is a particular problem if the value of a business was largely due to the acumen and contacts of the deceased and so the business may suffer significantly post death, particularly over a ten-year period.  Here the IHT liability will remain the same but if the business later fails then there may be insufficient value or income to pay the outstanding IHT instalments.
• The instalment option falls away if BPR or APR assets are sold, and all the tax outstanding becomes payable at that point – if PRs have parted with the assets, they may not have the cash to support that larger one-off payment. 

What to consider

All of this is a potential heavy responsibility for PRs during the administration period and being on the IHT hook for 10 years is not an attractive prospect.

For those making their Wills, it will be more important than ever to consider how these various IHT liabilities will be managed and if possible, to ensure that the question of liability and burden is as aligned as it can be.  A Will or Letter of Wishes may need a separate provision to set out any relevant thinking on how the overall IHT liability will be met in the long term. 

Careful thought will need to be given to your choice of Executors and ideally, they should be aware of their appointment, fully understand what may be involved in the role and be able to manage it appropriately for the relevant duration.  Appointing Executors who feel ill-prepared may lead them to consider renouncing the role on death which could lead to complications. 

More Information 

Please refer to our main website page for an overview of the BPR/APR IHT changes and our more detailed article on when and how IHT payments by instalments can be made.

It is key to remember that there is a distinction between the “liability” to pay IHT and the “burden” of it.