Paying inheritance tax before probate: the Direct Payment Scheme and every other route out

The catch-22 at the heart of probate

To get the grant of probate, you normally have to pay at least some of the inheritance tax first. To pay the inheritance tax, you need the deceased's money. And the deceased's money is frozen in bank accounts that will not release a penny until you produce the grant of probate. Every executor of a taxable estate walks into this loop within weeks of the death, and it has teeth: inheritance tax is due by the end of the sixth month after the month of death, and HMRC charges interest on anything outstanding after that, however slowly the paperwork is moving.

The loop is well known to HMRC, which is why four established exits exist. The main one is the Direct Payment Scheme: banks, building societies and NS&I will pay HMRC directly from the deceased's own accounts, before probate, on receipt of form IHT423. Where the estate's value is locked in property or a business rather than cash, the instalment option spreads the tax over 10 annual payments. Where neither covers the bill, executors can borrow, or in genuine dead-ends ask HMRC for a grant on credit. And some estates never face the problem at all, because a life insurance policy written in trust pays out within weeks and outside probate entirely. What follows is general information rather than legal or financial advice; the payment mechanics apply across the UK, although in Scotland the grant is called confirmation and our process guides focus on England and Wales.

Why the tax comes before the grant

Before applying for probate on a taxable estate, the personal representatives must send HMRC a full inheritance tax account on form IHT400 and start paying the tax. GOV.UK's probate guidance is explicit about the sequence: "If Inheritance Tax is due, start making payments. HMRC will then send you a unique code, which you need before applying." No payment, no code; no code, no application. (The code replaced the old stamped IHT421 receipt for probate applications in England and Wales.)

The clock is also running. Under HMRC's payment rules, inheritance tax must be paid by the end of the sixth month after the person died: die in January, and the deadline is 31 July. After that, interest accrues on whatever is outstanding, at HMRC's published late-payment rate, regardless of how good your reasons are or how slowly the probate process itself is moving. Our probate wait times index shows how easily the administrative timeline can outrun the tax deadline, which is exactly why the funding routes below exist.

One piece of housekeeping before any route: you need an IHT payment reference number, and HMRC asks you to apply at least 3 weeks before you make a payment, either online or by post on form IHT422. Executors who leave this until the IHT400 is finished lose three weeks for nothing. Get the reference early. And if you are not yet sure the estate owes tax at all, start with our IHT threshold calculator; whether you file the full IHT400 or qualify as an excepted estate is covered in our IHT400 vs IHT205 walkthrough, and only IHT400 estates face the payment problem this article solves.

Which route applies to you: a two-question test

The right route falls out of two questions:

1. Where is the money? If enough cash sits in accounts in the deceased's sole name at banks, building societies or NS&I, the Direct Payment Scheme is the answer and you may need nothing else.
2. If not, what is the value locked in? Property, a business or qualifying shares point to the instalment option. Value locked in assets that qualify for neither, or a genuine cash desert, points to bridging the gap with a loan, personal funds, or, last of all, a grant on credit.

Route 1: the Direct Payment Scheme (form IHT423)

Under the scheme, the personal representatives complete form IHT423, one form per institution, quoting the IHT payment reference. Each IHT423 goes to the bank or building society itself, not to HMRC. The institution then transfers the stated amount directly to HMRC from the deceased's account. The form is used alongside the IHT400, and the whole thing costs nothing: no borrowing, no interest, no security.

Points that catch people out:

• Sole-name accounts only. Joint accounts normally pass to the surviving holder by survivorship, so the bank re-registers them rather than freezing them, and they sit outside the scheme. A surviving spouse whose household cash was all in joint names can find there is nothing for an IHT423 to bite on, even though the deceased's share still counts in the estate.
• Participation is voluntary. Most major high-street banks and building societies take part, as does NS&I, but confirm with each institution's bereavement team when you first notify the death, and ask about their own paperwork and ID checks.
• NS&I is quietly the star. Premium Bonds cannot be transferred to a beneficiary anyway, so using them to pay the tax bill through the scheme turns an awkward asset into the most useful one in the estate.
• Allow processing time. Institutions take days to weeks to action an IHT423, and HMRC then needs to match the payment to your reference. Build this into the six-month deadline rather than treating the transfer as instant.

Route 2: paying in instalments on property and business assets

Where the estate's value is locked in bricks or a business, HMRC's instalment option lets you pay the tax attributable to qualifying assets in 10 equal annual instalments. Qualifying assets include land and buildings (the house itself), shares giving control of a company, unlisted shares worth over £20,000 in certain conditions, and businesses run for profit. The first instalment is due by the normal six-month deadline, and electing for instalments is what allows the probate application to proceed with only a tenth of that slice of the tax actually paid.

Three caveats stop this being a free lunch:

• Interest still runs. Each later instalment carries interest on the full outstanding balance, so instalments ease cash flow without reducing the true cost. The exception, introduced by Finance Act 2026: from 6 April 2026, instalments on newly inherited assets qualifying for Agricultural or Business Relief are interest-free unless an instalment is paid late.
• Sale accelerates everything. If the house or shares are sold, the remaining tax on them becomes payable in full at once. An estate planning to sell the property quickly is really using instalments as a bridge, not a 10-year plan.
• It only covers the qualifying slice. Tax attributable to cash, ordinary investments and personal effects cannot be paid this way and is due in full up front.

Worked example: one estate, two routes at once

An estate consists of a house worth £550,000, £40,000 in a sole-name bank account, and £210,000 of listed investments, a total of £800,000, all left to the deceased's daughter. With the £325,000 nil-rate band and the full £175,000 residence nil-rate band, £500,000 is covered and £300,000 is taxable at 40%: a bill of £120,000.

The tax is apportioned across the assets. The house is £550,000 of the £800,000 estate, so £82,500 of the tax is attributable to it and qualifies for instalments; the remaining £37,500 relates to the cash and investments and is due up front. The executor elects for instalments on the house slice, making the first-year requirement £8,250 plus the £37,500, which is £45,750. Form IHT423 sends the £40,000 bank balance straight to HMRC, and the last £5,750 is bridged from family funds, recoverable from the estate once the investments are sold after the grant. No commercial borrowing, and probate can proceed with £45,750 paid rather than £120,000. The remaining house instalments are then usually cleared early, from the estate, because interest is accruing on the balance.

Route 3: loans, personal funds and the grant on credit

Where the two main routes fall short, executors can pay from their own money and reclaim it from the estate, which GOV.UK expressly contemplates, or take a commercial probate loan secured against estate assets. Specialist lenders exist for exactly this gap; compare the loan's total cost against HMRC's instalment interest before assuming borrowing is worse, and weigh both against the estate's other costs using our probate cost calculator.

The genuine last resort is a grant on credit. Under HMRC's guidance, HMRC may agree to postpone payment and let the grant issue first, but only where you cannot access the assets before probate and have exhausted the other options, have paid as much as you can, and sign a legally binding undertaking to pay the balance by an agreed date. Where the plan is to pay from a property sale, HMRC expects an accepted offer and an estimated exchange date; it will not issue an open-ended undertaking. Interest accrues throughout. This is a negotiated concession, not an entitlement, and estates at this point generally benefit from professional help.

Route 0: life insurance written in trust

The best version of this problem is the one that never happens. A life policy written in trust pays out to the trust's beneficiaries outside the estate: no probate needed, no six-month squeeze, typically a payout within weeks of a death certificate, and the proceeds do not add to the taxable estate. Families who know an inheritance tax bill is coming sometimes hold a policy specifically so the liquidity exists on day one. Whether such a policy is right for anyone is a decision about insurance and estate planning that only an FCA-authorised financial adviser can properly advise on, not something this article can recommend; the factual point is simply that trust-held policies are the one funding source the freeze never touches.

What happens after the tax is paid

Once payments begin, HMRC issues the unique code for the probate application, and after the grant the estate opens up: accounts close, the house can be sold, and the executor reconciles the tax position, clearing instalments or repaying any bridge. HMRC does not send a receipt for each payment; it writes to confirm when all tax and interest is settled, and executors should keep that letter, since they are personally responsible for the estate's tax being right. If you are at the very start of this, our guides to the first 30 days for executors and the wider probate process put this payment step in sequence, and the probate timeline estimator shows how it fits the overall timetable. More detail on the tax itself lives in our inheritance tax pillar guide.

Funding an inheritance tax bill from a frozen estate is a solved problem, but the solving has an order: reference number first, IHT423 where there is sole-name cash, instalments where there is property, bridge or negotiate for the rest. Sequence those steps correctly and the estate largely pays its own bill; sequence them wrongly and everything sits locked while interest accumulates. If the sums are large or the assets awkward, a probate specialist can map that payment order against your specific estate, so the money starts moving before the six-month deadline does the deciding for you.