Navigate the inheritance tax paperwork maze in nine clear steps

A couple at their kitchen table organising inheritance tax paperwork — How to navigate the inheritance tax paperwork maze in nine clear steps

(Image credit: Getty Images)

Inheritance tax is the gift that keeps on giving to the chancellor but for families mourning loved ones it can be a complicated minefield to get right at an already difficult time, with an avalanche of paperwork to manage in a very tight deadline.

Record inheritance tax receipts are expected to rise even further, as frozen IHT thresholds and rising property prices bring more people into scope of paying inheritance tax.

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Both these new developments increase the demands on personal representatives – those in charge of administering the estate left behind after a death – to get the IHT paperwork right, or face potential fines.

Rebecca Minto, board director at the Association of Lifetime Lawyers, which specialises in later life and estate planning, said: “Inheritance tax paperwork is rarely straightforward, and the window for getting it wrong is surprisingly small: miss the six-month payment deadline and interest starts clocking up immediately.

Inheritance tax planning: what paperwork you need

Dealing with a loved one's estate is stressful enough without being caught off guard by the paperwork demands of inheritance tax. Whether a bill is due or not, families need to know what's required and with significant changes on the horizon for business assets and pensions, the stakes are rising.

Here's what you need to have in order:

1. Find out whether a full tax return is needed

Not every estate triggers a mountain of forms. If the estate qualifies as ‘excepted’, meaning no inheritance tax is due, the family simply completes the probate application and a short online declaration using Form IHT205. This is common when the estate is modest or when everything is left to a spouse or charity.

An estate is usually excepted if:

the gross value is £325,000 or less;
it's worth up to £650,000 and a nil rate band is being transferred from a late spouse or civil partner;
everything passes to a UK-domiciled spouse or UK charity and the estate is under £3 million;
the deceased was permanently resident outside the UK with UK assets below £150,000.

“It’s worth checking before assuming the worst,” said Minto. HMRC has an inheritance tax checker tool you can use.

2. If inheritance tax is due, expect detailed paperwork

Where the estate doesn't qualify as ‘excepted’, personal representatives must complete HMRC's full Inheritance Tax Account (the IHT400). This is a comprehensive document covering:

the deceased's family circumstances
a full breakdown of assets and liabilities
any lifetime gifts and settlements
tax exemptions and tax reliefs claimed
supporting valuations

Minto said: “Getting organised early – gathering bank statements, property valuations, and share certificates – will save considerable time and stress.”

3. What if no inheritance tax is due?

If no tax is due you still need to fill in form IHT205 at least. But even if no inheritance tax is due you could still be required to send full details of the value of the estate – within 12 months of the person dying – if the person who died:

gave away over £250,000 in the seven years before they died
gave gifts then continued to benefit from them in the seven years before they died
left an estate worth more than £3 million
was ‘deemed domiciled’ in the UK
had foreign assets worth more than £100,000
was living permanently outside the UK when they died but had previously lived in the UK
had a life insurance policy that paid out to someone other than their spouse or civil partner and also had an annuity
had increased the value of a lump sum from a personal pension to be paid after their death, while they were terminally ill or in poor health
had agreed that property they’d given away during their lifetime would be part of their estate rather than pay a pre-owned asset charge.

4. Other forms you might need

Other forms you may need to complete as part of the inheritance tax process, according to solicitors at DLA Law are:

IHT217 – to claim the unused nil rate band from a late spouse or civil partner (submitted alongside IHT205 to extend the inheritance tax threshold to £650,000).

IHT421 – needed with the IHT400 form when applying for probate. HMRC sends it directly to the Probate Registry after confirming the tax position.

IHT436 – to report gifts made during the deceased’s lifetime where they kept some benefit (e.g. continuing to live in a gifted property).

IHT435 – needed if the deceased made regular gifts out of income, to determine whether any extra inheritance tax is due

5. Don't miss the inheritance tax payment deadline

IHT is normally due six months after the end of the month in which the death occurred. Miss this and interest starts accruing automatically.

“The problem families can face is that the Grant of Probate, which unlocks the estate's assets, hasn't been issued yet. This is where planning ahead in terms of paperwork-gathering really pays off,” said Minto.

With a window of only a few months after the person’s death, try to locate as much documentation about pensions, property and insurance while your loved ones are still around to ask for details. Pension provider Royal London has a helpful ‘When I’m Gone’ document anyone can download and use to share helpful details with family and friends.

6. Sort paperwork for paying the inheritance tax bill

There are multiple potential options for paying an inheritance tax bill. Banks and financial institutions can pay HMRC directly before the Grant of Probate is issued using a form called the IHT423 – this Direct Payment Scheme is often the most straightforward route.

If the estate includes property, land, or qualifying business assets, the IHT on those assets can generally be spread across up to 10 annual instalments, though selling the asset usually makes the balance fall due immediately.

Where funds simply can't be accessed in time, HMRC can sometimes postpone payment via a ‘Grant on Credit’ arrangement, though interest continues to run up.

Personal representatives or beneficiaries can also advance funds personally and be reimbursed later, or a specialist probate bridging loan could be used to cover the liability while the estate is administered.

“It's also worth taking legal advice on whether a post-death variation of the estate could reduce the bill in whole or in part,” Minto said. This ‘deed of variation’ allows beneficiaries to legally alter a will or the rules of intestacy within two years of a death, often to reduce IHT.

7. Consider life insurance written in trust

Business owners and farmers in particular, may wish to consider this bit of paperwork sooner rather than later, said Minto.

A life insurance policy written in trust sits outside the estate, meaning the proceeds are accessible quickly and without probate – providing ready cash to meet a tax bill without having to sell or borrow against illiquid assets.

“For those in reasonable health where premiums aren't prohibitive, it's one of the most practical tools available,” Minto said.

8. Understand changes to business and agricultural relief from April 2026

From 6 April 2026, the 100% business property relief (BPR) and agricultural property relief (APR) will only apply up to a cumulative £2.5 million allowance per person. Business owners and farmers whose estates currently pass IHT-free may find a significant inheritance tax bill emerging overnight.

Where the estate includes company shares, a farm, or other qualifying assets all this paperwork will need to be gathered and valuations obtained. Where it is valued above the £2.5 million threshold, “families will need to think carefully about how to fund the excess – whether through dividends from the company, a share buy-back, borrowing, or an insurance policy”, said Minto.

“Each option has its own tax implications and commercial consequences, so specialist advice well in advance of April 2026 is essential,” she added.

The government’s guidance is that the majority of personal representatives claiming the BPR and APR will not face additional ongoing administrative burdens. For the estates which only hold shares that are not listed, there are no new obligations as the only change will be an update to the rate of the relief and there will be no change to how they interact with HMRC.

Where the estate now seeks to claim relief for assets in excess of £2.5 million, personal representatives will need to undertake an additional calculation at the reduced 50% rate. This will be reflected on updated IHT400 forms and guidance.

9. Remember pensions will be subject to inheritance tax from April 2027

Currently, pension funds sit outside the inheritance tax net. From April 2027, that changes. This will require pension schemes and personal representatives to share detailed information with one another. The exact processes for doing this are still under consultation. However it is expected to follow this pattern:

personal representatives will have to inform pension schemes of a member’s death
the pension scheme will then need to share details of unused pension funds and death benefits
personal representatives will have to calculate and share how much inheritance tax nil-rate band is apportioned to the relevant pension
pension schemes will be required to use this information to calculate the amount of inheritance tax due on the unused pension funds and death benefits, and to report and pay this to HMRC

Other variations of this are under consideration. The practical reality, though, is that this is a genuinely complex area.

Minto said: “Personal representatives and pension scheme administrators will need to share information and coordinate carefully, and delays in doing so could lead to late payment interest. Families with substantial pension pots should be reviewing their planning now.”

Laura Miller is an experienced financial and business journalist. Formerly on staff at the Daily Telegraph, her freelance work now appears in the money pages of all the national newspapers. She endeavours to make money issues easy to understand for everyone, and to do justice to the people who regularly trust her to tell their stories. She lives by the sea in Aberystwyth. You can find her tweeting @thatlaurawrites