Interest Rate Rises on Unpaid Inheritance Tax: A Stealth Tax Substitution for Inheritance Tax Rate Rises

Interest rate rises on unpaid inheritance tax are being criticized as a “stealth tax” by legal practitioners in England and Wales. The current interest rate of 7.5% on unpaid inheritance tax has increased 13 times since last year and five times this year alone, surpassing the base rate of 5% set by the Bank of England.

With probate delays on the rise, practitioners are struggling to administer estates within the six-month period before interest accrues. Michael Culver, Managing Director at Culver Law, described the situation as a “stealth tax increase” and criticized the short timeframe for payment as “ridiculously short.”

Natalie Payne, Partner at Morr & Co, also expressed concerns about the delays in probate grant timelines, suggesting that beneficiaries are unfairly penalized. She called for an extension of the period before interest on unpaid inheritance tax begins to be incurred.

Andrew Shirtcliffe, Business Development Director at Ampla Finance, highlighted the financial strain faced by families due to the high interest rates and prolonged probate proceedings. He called for a comprehensive review and reform of the system to alleviate the burden on families.

However, HMRC defended the interest rates, stating that they are fair and necessary to ensure tax compliance. They pointed out various payment methods available to help personal representatives pay inheritance tax and explained the rationale behind the higher interest rates compared to the base rate.

While some practitioners question the fairness of the interest rates, HMRC maintains that they are necessary to prevent tax avoidance and ensure a level playing field for all taxpayers. The debate over the impact of interest rate rises on unpaid inheritance tax is likely to continue as practitioners and HMRC seek to find a balance between tax compliance and fairness for taxpayers.