HM Revenue & Customs has announced the interest rate it charges on overdue inheritance tax will increase to 6 per cent from today (January 6).
On it website, the government said the interest rate would be 6 per cent, up from 2.75 per cent during the same period last year.
Meanwhile for repayments it would be 2.5 per cent, an increase from 0.5 per cent in January 2022.
| | Interest rate due to HMRC on late payment of IHT | Interest rate paid by HMRC if you are due a refund for overpaid IHT |
| From February 1 to February 20, 2022 | 2.75% | 0.5% |
| From January 6, 2023 | 6% | 2.5% |
Source: Canada Life
Canada Life said the new rate is more than double the rate at the start of last year, driven by base rate rises following the economic turmoil.
However, it is only a slight increase from the 5.5 per cent interest rate and 2 per cent interest on repayments between November 22, 2022 and January 5, 2022.
IHT is normally due by the end of the sixth month after the event – so for example, six months after an individual has died, or six months after transfers into or out of a trust.
If IHT is not paid by that point, interest will start to be charged.
It is possible to pay IHT in advance as if the estate has not been settled within the six month period, an estimated IHT charge could be paid to HMRC.
If too much is paid, HMRC will refund any excess plus interest – however the interest HMRC will pay on the overpayment is substantially lower, at only 2.5 per cent.
Andrew Tully, technical director, Canada Life, said: “The current economic climate means significantly higher interest rates will be charged, with the potential for these to increase further as we move through 2023.
“Beneficiaries can pay HMRC in advance but many won’t have available assets to allow this to happen. Where IHT is due on assets which may take time to sell, such as the family home, it’s possible to pay the bill in annual instalments over 10 years.”
Tully added: “This allows the family to keep the asset and pay the tax due gradually. However, the big increase in interest rates will make this a less attractive option. IHT is a complex area so people affected should take expert financial advice which will help work out the best outcome for their particular circumstances.”
sonia.rach@ft.com
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