Inheritance Tax Act 1984 section 234

Interest on instalments

Section 234 provides that, for certain qualifying categories of property, interest on each instalment of inheritance tax is charged only from the date that instalment falls due, rather than from the original due date for the full tax — effectively making instalments interest-free if paid on time.

• Where inheritance tax is payable by instalments on qualifying property (shares, securities, businesses, interests in businesses, or woodlands), interest on each instalment runs only from the date that instalment is due — so no interest arises if each instalment is paid on time.
• This interest-free treatment does not apply to shares or securities in investment-type companies (those mainly dealing in securities, stocks, shares, land, or holding investments) unless the company is a holding company of non-investment trading companies, or is a recognised market maker or discount house operating in the United Kingdom.
• The categories of property that qualify for interest-free instalments include: controlling or unquoted shareholdings (excluding investment companies), businesses and partnership interests, and land whose value is reduced by agricultural relief or reflected in the value of a business or business interest.
• Interest can become payable on otherwise interest-free instalments in three situations: if an instalment is assessed late, if the total tax on the property increases, or if the property is sold and the instalment option ceases.