How to Pay Inheritance Tax When You Have No Money

TL;DR: If an estate owes inheritance tax but there is no cash to cover the bill, you have several options: draw from the deceased's bank account via the Direct Payment Scheme, pay the tax on property in annual instalments, take out an executor loan, or sell estate assets once probate is in place. This guide covers each option in order of simplicity, including what changed under the Finance Act 2026.

Most executors expect paperwork. Few expect a tax bill they cannot actually pay.

Inheritance tax must be settled with HMRC before you can obtain a grant of probate, which is the legal authority to deal with the estate and sell its assets. When the bulk of an estate sits in a property rather than a bank account, that creates a genuine deadlock: you cannot sell the property without probate, but you cannot get probate without paying the tax first. It is a circular problem, and it catches more families every year. HMRC figures show that inheritance tax receipts reached £7.7bn in the first 11 months of 2025/26, up £132m on the same period the year before, driven largely by frozen thresholds and rising property values.

The good news is that the deadlock has solutions. This guide covers each one in order, starting with the simplest, and explains what the recent changes under the Finance Act 2026 mean for estates with business or agricultural assets.

Why So Many Estates Have No Cash to Pay Inheritance Tax

Inheritance tax must be paid to HMRC by the end of the sixth month after death. In most cases it must be paid before the Probate Registry issues a grant of probate. When an estate's value is held in property rather than savings or investments, executors face a situation where they cannot access or sell the assets they need to pay the bill.

This is not an unusual position. House prices across much of England have grown significantly over the past two decades, pushing many estates over the £325,000 nil-rate band (the tax-free threshold set by HMRC) without the deceased ever having large cash savings to match.

The nil-rate band, which is the amount an estate can pass on free of inheritance tax, has been frozen at £325,000 since 2009 and will remain there until April 2031. As property values have risen and the threshold has stood still, more families find themselves dealing with an IHT bill for the first time. Understanding your options before the six-month deadline arrives makes the process significantly more manageable.

Step One: Check the Direct Payment Scheme First

Before exploring loans or asset sales, the first thing any executor should check is whether the deceased held a UK bank or building society account with funds available. Most major banks participate in the Direct Payment Scheme (DPS), an arrangement that allows inheritance tax to be paid directly from the deceased's bank account before probate is granted.

The Direct Payment Scheme works like this:

• Contact the deceased's bank or building society and confirm the account balance.

• Request the bank to transfer funds directly to HMRC on your behalf.

• The bank processes the transfer without requiring probate to be in place first.

• Once HMRC receives payment (or part-payment), you can proceed with the probate application.

This route bypasses the deadlock entirely if the account holds enough to cover the bill. If it covers only part of the liability, the DPS reduces the shortfall, and you use one of the other options below to cover the rest.

MoneyHelper's inheritance tax guide confirms that most inheritance tax is paid through the DPS, making it the standard first step for executors rather than an exception.

Can You Pay Inheritance Tax on Property in Instalments?

If the estate includes property or land, HMRC allows the inheritance tax due on those assets to be paid in ten equal annual instalments rather than as a single lump sum. The first instalment is due by the end of the sixth month after death. Interest accrues on the outstanding balance throughout, and if the property sells before all instalments are paid, the remaining tax becomes due in full immediately.

This option is particularly useful when the estate's beneficiaries intend to keep the property rather than sell it. It allows them to obtain probate (using an executor loan or DPS to cover the first instalment), then pay down the remaining liability each year from rental income or other funds.

Assets that qualify for the instalment option include:

• Residential and commercial property and land

• Certain unlisted shares where the company qualifies

• Business assets in some circumstances

Assets that do not qualify include cash, listed shares, and most savings-type investments. The GOV.UK guidance on paying inheritance tax sets out the full eligibility criteria.

One point that often catches executors out: if the estate sells the property at any point before the ten years are up, all remaining IHT and any accrued interest becomes payable immediately. If selling is the plan, the instalment route may not save you anything in the long run.

What Is an Executor Loan and How Does It Work?

An executor loan is a short-term borrowing facility taken specifically to pay an inheritance tax bill, secured against the estate's assets. It allows the executor to clear the IHT liability, obtain probate, and then repay the loan once the estate's property or other assets have been sold. Bridging loans serve a similar purpose and are often used when a property sale is close to completion but funds are not yet available.

Both types of loan are secured against the estate rather than against the executor personally, which matters if you're acting as executor for someone else's estate. The lender takes the estate's assets as security, and repayment comes from the proceeds once the property sells or the estate is realised.

Before committing to either option, ask the lender:

• What is the interest rate, and is it fixed or variable?

• Are there arrangement fees, and how are they charged?

• What is the loan term, and are there early repayment charges?

• What happens if the property takes longer to sell than expected?

Interest and fees reduce the amount beneficiaries ultimately receive, so it's worth working through the numbers before committing. A bridging loan typically carries a higher rate than an executor loan because of its shorter term, but may be the right call if exchange of contracts is already agreed and you need funds quickly.

Selling Estate Assets to Pay the Bill

For most property-heavy estates, selling the main residential property is ultimately how the inheritance tax gets settled. The typical sequence is: use the DPS, an executor loan, or the instalment option to obtain probate, then sell the property and use the proceeds to repay whatever was borrowed or outstanding.

Getting the property valuation right at the outset matters more than most executors realise. Your IHT bill is calculated based on the property's open market value at the date of death. An inaccurate valuation means either overpaying tax or, worse, underpaying and later facing a penalty from HMRC.

If the estate includes a residential property in West Berkshire, Central Wiltshire, or South Oxfordshire, Jones Robinson can provide a professional valuation and manage the probate property sale process from instruction through to completion. For executors navigating both the legal and practical side of an estate sale, having an agent who understands how the sale process works and can coordinate with solicitors makes a material difference to how smoothly the process runs.

Our conveyancing service can also support the legal side of the transaction, with a Contract Ready approach that prepares draft contracts before an offer is accepted, reducing delays once a buyer is found.

Life Insurance, Business Relief, and Other Options Worth Checking

If the deceased held a whole-of-life insurance policy written in trust, the payout sits outside the taxable estate and can be used to pay the inheritance tax bill without itself attracting any IHT. A whole-of-life insurance policy written in trust is a life insurance policy placed into a legal trust arrangement so that the payout on death falls outside the estate entirely, allowing beneficiaries to access the funds quickly without a tax charge on the policy itself.

The key phrase is "written in trust." A policy that was not placed in trust forms part of the estate and may increase the IHT liability rather than offset it. It's worth checking with the insurer or a solicitor to confirm how the policy was set up.

Beyond life insurance, there are a few other options that apply in specific circumstances:

• Business Property Relief (BPR) and Agricultural Property Relief (APR). These reliefs can reduce or eliminate the IHT due on qualifying business or agricultural assets. Under the Finance Act 2026, 100% relief is now capped at £2.5m per person for combined agricultural and business assets, down from unlimited. Amounts above this threshold qualify for 50% relief. Anyone administering an estate with farm or business assets should verify the relief position with a solicitor before assuming the liability is fixed.

• British government stock. In some cases, gilts (UK government bonds held by the deceased) can be used to pay IHT directly, via Computershare Investor Services. This is a less commonly known route and not available for all estates.

• Family loans. Beneficiaries or family members can lend the executor funds to cover the bill, then be repaid from the estate once probate is obtained. A written agreement setting out the repayment terms avoids misunderstandings later.

None of these options work in every situation. The right approach depends on what the estate contains, how quickly probate is needed, and what the beneficiaries' longer-term intentions are for the assets.

What to Do First

If you're administering an estate with an IHT bill and limited cash, the order of steps matters.

Start with the basics: check whether the deceased held a UK bank account with funds available, and contact the bank about the Direct Payment Scheme. If the estate includes property, check whether the instalment option applies and whether that buys enough time. If you need probate quickly and there is no cash in the estate, an executor loan is usually the most straightforward route to unlock the process.

Getting the property valuation right from the start reduces the risk of paying more tax than necessary. If the estate includes residential property in our area, contact the Jones Robinson team for a valuation and a straightforward conversation about what happens next. Alternatively, book a valuation online.

One final note: the rules around inheritance tax have changed significantly in the last 12 months. Before finalising any IHT calculation, particularly one involving business assets, farmland, or pension funds, take advice from a probate solicitor. The figures can shift materially depending on which reliefs apply.

Frequently Asked Questions

Can you get probate without paying inheritance tax first?

In most cases, HMRC requires inheritance tax to be paid before the Probate Registry issues a grant of probate. There is an exception: HMRC can grant probate "on credit" in limited circumstances where it is genuinely impossible to raise the funds beforehand and the executor can demonstrate they have explored every practicable option. In practice, an executor loan or the Direct Payment Scheme usually resolves the deadlock without needing to apply for a grant on credit.

How long do you have to pay inheritance tax?

Inheritance tax must be paid by the end of the sixth month after the month in which the person died. If the person died in January, the IHT deadline is 31 July. HMRC charges interest on any outstanding amount after the deadline, at a rate linked to the Bank of England base rate. You can make payments on account before the exact figure is confirmed, which stops interest accruing on the amount paid.

What happens if the estate has no assets at all?

If the estate genuinely has no assets or funds from which IHT can be paid, the executor should contact HMRC directly and explain the position. In exceptional circumstances, HMRC may agree to defer payment or accept a structured plan. This is uncommon and HMRC will expect clear evidence that every available option has been considered first. A probate solicitor can help you make the case.

Does selling an inherited property trigger additional tax?

Selling an inherited property may give rise to Capital Gains Tax if the property has increased in value between the date of death and the date of sale. The starting point for CGT purposes is the probate value (the property's open market value at the date of death), not its original purchase price. The estate benefits from an annual CGT exemption during the period of administration. A solicitor or accountant can confirm whether CGT applies and at what rate.

Have the inheritance tax rules changed recently?

Yes, significantly. From April 2026, Business Property Relief and Agricultural Property Relief are capped at £2.5m per person at 100% relief under the Finance Act 2026, with amounts above this threshold qualifying for 50% relief. From April 2027, unused pension funds will be included in the taxable estate for IHT purposes. The nil-rate band remains frozen at £325,000 until April 2031. Anyone administering or planning an estate should verify how these changes affect the reliefs available before finalising any IHT calculation.

This article is for general informational purposes only and does not constitute legal or financial advice. Inheritance tax rules are complex and subject to change. Please seek advice from a qualified solicitor or financial adviser before making decisions about an estate.

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