The HMRC Direct Payment Scheme (DPS) lets UK executors pay inheritance tax directly from the deceased’s bank account without first obtaining the grant of probate — solving the classic chicken-and-egg problem where banks freeze accounts but IHT must be paid before probate is granted. The mechanics: the executor completes form IHT423 (one per institution holding funds), the bank/building society/NS&I transfers the agreed amount direct to HMRC. Most major UK banks and NS&I participate. The scheme covers IHT itself plus any interest accrued. It does NOT cover the £300 probate application fee (which the executor must pay personally or from any accessible funds). The DPS is the single biggest cash-flow rescue for executors with low-cash, high-property estates. This guide explains how the IHT Direct Payment Scheme works in 2026, which banks participate, and the realistic process for using it.
Last reviewed: 24 May 2026 by the MP Estate Planning editorial team. Jurisdiction: England and Wales. Scotland and Northern Ireland have different probate and intestacy rules; the IHT thresholds are UK-wide.
Managing inheritance tax can be overwhelming, but the UK Direct Payment Scheme offers a simpler solution. According to GOV.UK, “You must pay some or all of the Inheritance Tax before you can get a ‘grant of representation’ also known as ‘probate’.” We understand that this process can be daunting, but using the Direct Payment Scheme can significantly reduce the administrative burden on executors.
The scheme allows executors to pay inheritance tax directly from the deceased’s bank or building society accounts. For more detailed information on utilising this scheme, you can refer to our resource on Inheritance Tax and the Direct Payment. By following this process, executors can avoid the rush to liquidate assets prematurely and arrange costly short-term finance, thereby speeding up the probate process.
Key Takeaways
Simplify inheritance tax payments using the UK Direct Payment Scheme.
Reduce administrative burden on executors.
Pay inheritance tax directly from the deceased’s accounts.
Avoid premature asset liquidation.
Speed up the probate process.
Understanding the Inheritance Tax Direct Payment Scheme
Three rule changes you may need to consider (2026/27)
1. Pensions become subject to IHT from 6 April 2027. Most unused defined-contribution pension pots currently sit outside the estate for IHT — that ends on 6 April 2027 (gov.uk policy paper). HMRC estimates around 10,500 estates will face IHT for the first time as a result.
2. Business and agricultural property reliefs capped at £2.5m per person from 6 April 2026. Above the cap, only 50% relief applies — effective IHT of 20%. AIM shares dropped to 50% relief and do not use the £2.5m allowance (Saffery — APR/BPR reforms).
3. The NRB, RNRB and £2m taper threshold are frozen until 5 April 2031 following the 2024 and 2025 Budgets (gov.uk — NRB and RNRB freeze). With inflation, more estates will be pulled into IHT each year — a process commonly called “fiscal drag.”
We will explore the Inheritance Tax Direct Payment Scheme, a valuable resource for managing inheritance tax payments. This scheme allows for a more streamlined process when dealing with the complexities of inheritance tax.
What is the Direct Payment Scheme?
The Direct Payment Scheme is an initiative by HMRC that enables the direct payment of inheritance tax from the deceased’s bank, building society, or National Savings and Investments (NS&I) accounts. As per the GOV.UK website, “You can ask HMRC to pay some or all of the Inheritance Tax from the deceased’s bank, building society or NS&I accounts directly to HMRC using the Inheritance Tax Direct Payment Scheme.”
This scheme simplifies the process by reducing the administrative burden on executors and allows for more efficient settlement of tax liabilities.
Eligibility Criteria for the Scheme
To be eligible for the Direct Payment Scheme, the deceased must have had funds in a bank, building society, or NS&I account. The scheme is designed to facilitate the payment of inheritance tax directly from these accounts, making it a convenient option for executors.
The key eligibility criteria include:
The deceased held an account with a bank, building society, or NS&I.
The account is subject to inheritance tax.
The account is not exempt or outside the scope of inheritance tax.
By understanding these criteria, executors can determine whether they are eligible to use the Direct Payment Scheme for inheritance tax purposes.
The Benefits of Using the Direct Payment Scheme
Utilising the Direct Payment Scheme can significantly simplify the process of paying inheritance tax. By allowing payments to be made directly from the deceased’s bank, building society, or NS&I accounts to HMRC, the scheme reduces the complexity associated with managing estate finances.
According to the GOV.UK website, “Pay some or all of the Inheritance Tax that is due by transferring money from the deceased’s bank, building society or NS&I accounts directly to HMRC.” This approach not only streamlines the payment process but also reduces the administrative burden on executors and beneficiaries.
Streamlined Payment Process
The Direct Payment Scheme offers a streamlined payment process that eliminates the need to transfer funds to a separate account before paying HMRC. This direct method can save time and reduce the risk of delays or complications.
Direct transfers from existing accounts
Reduced need for interim accounts
Faster processing times
Reduction of Administrative Burden
By simplifying the payment process, the Direct Payment Scheme significantly reduces the administrative burden on those responsible for managing the estate. This can be particularly beneficial during a challenging time, allowing executors to focus on other important aspects of estate administration.
Benefit
Description
Simplified Payments
Direct transfers from deceased’s accounts to HMRC
Reduced Administrative Tasks
Less need for managing multiple accounts
Faster Processing
Quicker settlement of inheritance tax liabilities
In conclusion, the Direct Payment Scheme offers significant benefits in terms of streamlined payments and reduced administrative tasks, making it an valuable tool for tax planning and estate management.
How to Apply for the Scheme
We’ll guide you through the steps to successfully apply for the Inheritance Tax Direct Payment Scheme. Applying for this scheme can simplify your inheritance tax payments, making the process less daunting during a difficult time.
Application Steps Explained
To apply for the Direct Payment Scheme, follow these straightforward steps:
Complete the necessary Inheritance Tax account form IHT400 and any supplementary pages.
Gather all supporting documents as required by HMRC.
Send the signed and completed form along with the supporting documents to HMRC.
As stated on the GOV.UK website, “Send a signed and completed Inheritance Tax account form IHT400 and any supplementary pages or supporting documents to HMRC.” Ensuring that you follow these steps accurately will help in processing your application efficiently.
Required Documentation
The following table outlines the typical documentation required for the application:
Document Type
Description
Required By HMRC
Inheritance Tax Account Form IHT400
Main form for reporting inheritance tax
Yes
Supplementary Pages
Additional details about the estate
Yes, if applicable
Supporting Documents
Documents such as wills, valuations, and identification
Yes
It’s essential to check with HMRC or a professional advisor to ensure you have all the necessary documentation for your specific situation.
Key Deadlines for Inheritance Tax Payments
The timely payment of inheritance tax is essential, and knowing the key deadlines can help you plan accordingly. According to the GOV.UK website, “You must pay Inheritance Tax by the end of the sixth month after the person died.” This deadline is critical to avoid penalties.
Important Dates to Remember
Several key dates are crucial when managing inheritance tax:
The date of death, as it triggers the start of the timeline for tax payments.
The end of the sixth month after the date of death, by which inheritance tax must be paid.
The date by which the inheritance tax return must be filed, typically within 12 months of the date of death.
Filing Requirements
Filing requirements for inheritance tax include submitting the relevant forms and supporting documentation. The inheritance tax return form must be completed accurately and submitted on time to avoid any penalties.
As stated on the GOV.UK website, “You need to report the value of the estate to HMRC and pay any inheritance tax due.” Ensuring compliance with these requirements is vital for a smooth process.
To summarize, meeting the deadlines for inheritance tax payments and filing the required returns on time are crucial steps in managing the estate effectively. By understanding and adhering to these timelines, you can avoid unnecessary penalties and financial stress.
Common Misconceptions About the Scheme
The Inheritance Tax Direct Payment Scheme is often shrouded in misconception, but we’re here to set the record straight. As experienced professionals, we understand the importance of clarity when dealing with complex financial matters like Inheritance Tax.
Myths and Facts
Several myths surround the Direct Payment Scheme. Let’s address some of the most common misconceptions:
Myth: The scheme is only for large estates. Fact: The scheme is available for estates of various sizes, provided they meet the eligibility criteria.
Myth: You can’t use the deceased’s assets to pay Inheritance Tax. Fact: As per the GOV.UK website, “You can pay some or all of the Inheritance Tax using the deceased’s assets such as bank and building society accounts or National Savings and Investments (NS&I).”
Myth: The application process is overly complicated. Fact: While the process requires some documentation, HMRC provides clear guidelines to help you through it.
Clarifying the FAQs
Frequently Asked Questions about the Direct Payment Scheme often revolve around eligibility and the application process. Here are some clarifications:
Q: Who is eligible for the Direct Payment Scheme? A: Estates that meet specific criteria, including having assets that can be used to pay Inheritance Tax, are eligible.
Q: How do I apply? A: You need to submit an application with the required documentation to HMRC.
Q: Can I pay Inheritance Tax partially using the scheme? A: Yes, you can pay some or all of the Inheritance Tax using the deceased’s assets.
By understanding the facts and clarifying the FAQs, we hope to provide you with a clearer picture of the Inheritance Tax Direct Payment Scheme and how it can benefit you.
Financial Implications of Inheritance Tax
Understanding the financial implications of inheritance tax is crucial for effective estate planning. Inheritance tax can have a significant impact on the assets you leave behind for your loved ones, and it’s essential to grasp how it works to make informed decisions.
Understanding Tax Rates
Inheritance Tax is charged at a rate of 40% on the estate’s value above the outside the scope of IHT threshold of £325,000 (gov.uk — Inheritance Tax), as per the GOV.UK website. This means that if your estate is valued below this threshold, you won’t have to pay inheritance tax. However, if your estate exceeds this amount, you’ll need to consider the tax implications carefully.
For instance, if you have an estate valued at £425,000, the amount above the threshold (£100,000) will be subject to the 40% tax rate. This results in a tax liability of £40,000. Understanding these rates and thresholds is vital for planning your estate effectively.
Calculating Your Tax Liability
Calculating your tax liability involves assessing the total value of your estate and then applying the relevant tax rate. To do this, you’ll need to consider all your assets, including property, savings, and investments. For more detailed guidance on inheritance tax planning in specific areas like Pilning, you can visit our page on Inheritance Tax Planning in Pilning.
Estate Value
outside the scope of IHT Threshold
Taxable Amount
Tax Liability
£425,000
£325,000
£100,000
£40,000
£525,000
£325,000
£200,000
£80,000
By understanding how to calculate your tax liability, you can better plan your estate and potentially reduce the inheritance tax burden on your beneficiaries. This involves considering various strategies, such as gifting assets or setting up trusts, to minimize the taxable value of your estate.
Tips for Managing Inheritance Tax Payments
Managing inheritance tax payments effectively is crucial for the financial well-being of your estate and beneficiaries. As we navigate the complexities of inheritance tax, it’s essential to have a clear understanding of the available strategies and planning techniques.
Budgeting for Inheritance Tax
Budgeting for inheritance tax involves anticipating and planning for the potential tax liabilities that may arise upon your passing. According to GOV.UK, “You can pay Inheritance Tax in instalments over 10 years if you’re paying tax on certain assets like property.” This flexibility can significantly ease the financial burden on your estate.
Assess the value of your estate and its components to estimate potential inheritance tax.
Consider the impact of tax on your estate’s liquidity and plan accordingly.
Explore available reliefs and exemptions that can reduce your inheritance tax liability.
Seeking Professional Advice
Navigating the complexities of inheritance tax requires expertise. Seeking professional advice can provide personalized strategies tailored to your specific circumstances. For instance, consulting with a financial advisor or tax specialist can help you optimize your estate’s tax position. You can find more information on inheritance tax planning in Derby.
Consideration
Description
Benefit
Professional Guidance
Expert advice on inheritance tax planning
Personalized strategies for tax optimization
Tax Reliefs and Exemptions
Utilizing available tax reliefs and exemptions
Reduced tax liability for your estate
Instalment Payments
Spreading inheritance tax payments over 10 years
Eases financial burden on your estate
By combining effective budgeting with professional advice, you can develop a comprehensive plan to manage inheritance tax payments, ensuring a more secure financial future for your beneficiaries.
Impact of the Direct Payment Scheme on Estate Planning
The Direct Payment Scheme is a game-changer for estate planning, simplifying Inheritance Tax payments. We will explore how this scheme can be utilized to adjust your estate plans and consider long-term financial implications.
Adjusting Your Estate Plans
With the Direct Payment Scheme, you can pay some or all of the Inheritance Tax due directly from the estate, simplifying the process. This allows for more efficient estate planning and administration.
To adjust your estate plans effectively, consider the following:
Review your current estate plan to ensure it aligns with the Direct Payment Scheme.
Assess the impact of the scheme on your Inheritance Tax liability.
Consult with a financial advisor to optimize your estate plan.
Long-Term Financial Considerations
When planning your estate, it’s essential to consider the long-term financial implications of the Direct Payment Scheme. This includes understanding how the scheme affects your overall tax liability and the distribution of your estate.
Financial Consideration
Impact of Direct Payment Scheme
Inheritance Tax Liability
Reduced liability due to direct payment
Estate Distribution
Simplified distribution process
Long-Term Financial Planning
Enhanced planning capabilities
By understanding the impact of the Direct Payment Scheme on your estate planning, you can make informed decisions to ensure a more efficient and effective distribution of your estate.
Future Changes to Inheritance Tax Legislation
As we navigate the complexities of inheritance tax, it’s essential to stay informed about potential changes to the legislation. According to the GOV.UK website, HMRC may change the rules and procedures for Inheritance Tax in the future. We must consider these potential changes when planning our estates.
Potential Reforms and Their Impact
Anticipated reforms to inheritance tax legislation could significantly impact estate planning strategies. We should stay informed about these changes to ensure our estate plans remain effective and compliant with the latest regulations.
Staying Ahead of the Curve
To stay informed, we recommend regularly checking updates from HMRC and consulting with estate planning professionals. By doing so, we can adapt our estate plans to any changes in inheritance tax legislation, ensuring we remain prepared for the future.
FAQ
What is the Inheritance Tax Direct Payment Scheme?
The Inheritance Tax Direct Payment Scheme is a convenient method for paying inheritance tax directly from the deceased’s bank, building society, or National Savings and Investments (NS&I) accounts, reducing the administrative burden on executors.
Who is eligible for the Direct Payment Scheme?
To be eligible, the deceased must have had funds in a bank, building society, or NS&I account. We can help you determine if you meet the eligibility criteria.
How do I apply for the Direct Payment Scheme?
To apply, you’ll need to complete the necessary documentation and follow the application steps. We guide you through the process, ensuring that you understand what’s required and how to submit a successful application.
What are the benefits of using the Direct Payment Scheme?
The scheme offers several benefits, including a streamlined payment process and reduced administrative burden. By paying inheritance tax directly from the deceased’s accounts, you can avoid transferring funds to a separate account, simplifying the process.
What are the key deadlines for inheritance tax payments?
Meeting deadlines is crucial when managing inheritance tax. We outline the key dates to remember and the filing requirements, ensuring that you’re aware of the timelines and can plan accordingly.
How do I calculate my inheritance tax liability?
Understanding the financial implications of inheritance tax is essential for effective estate planning. We explore the tax rates and help you calculate your tax liability, providing you with the knowledge to make informed decisions.
Can I budget for inheritance tax, and why is it important?
Managing inheritance tax payments requires careful planning. We offer tips on budgeting for inheritance tax and the importance of seeking professional advice, ensuring that you’re well-equipped to navigate the process.
How does the Direct Payment Scheme impact estate planning?
The Direct Payment Scheme can have a significant impact on estate planning. We explore how to adjust your estate plans and consider long-term financial implications, ensuring that you’re prepared for the future.
What if there are changes to inheritance tax legislation?
Inheritance tax legislation is subject to change, and it’s essential to stay informed. We discuss anticipated reforms and their potential impact, providing guidance on how to stay prepared and adapt to any changes.
Why is it essential to seek professional advice for inheritance tax?
Seeking professional advice is crucial for managing inheritance tax effectively. We can provide guidance on navigating the Direct Payment Scheme and ensuring that you’re well-equipped to handle inheritance tax payments.
Which Banks and Building Societies Participate in the Direct Payment Scheme
One of the most practical questions executors face when using the Direct Payment Scheme is whether the deceased’s bank or building society is actually part of it. Not every financial institution participates, and confirming this early in the administration process can help avoid delays in settling the inheritance tax liability with HMRC.
Finding Out Whether the Deceased’s Institution Is Included
HMRC maintains a list of participating banks and building societies, which is published as part of the guidance accompanying Form IHT423 on GOV.UK. In most cases, the major UK high street banks — including Barclays, HSBC, Lloyds, NatWest and Santander — participate in the scheme, as do a number of building societies. However, smaller institutions, credit unions and some overseas banks with UK branches may not be included. Our team would generally recommend checking the current list before assuming funds held with a particular institution can be used to settle the tax directly.
How to Complete Form IHT423 Correctly
Form IHT423 is the document sent directly to the deceased’s bank or building society, authorising the release of funds to HMRC to cover all or part of the inheritance tax due. Common errors that typically cause HMRC or the bank to reject or delay processing include: submitting the form before the IHT400 reference number has been issued; failing to enter the correct account details for the deceased; and leaving the amount payable section incomplete or inconsistent with the IHT400 figures. It is also important that the executor signs the form in their capacity as personal representative — a signature without that designation may be queried. In our experience, double-checking the sort code and account number against original bank statements, rather than relying on memory, significantly reduces the risk of delays.
What Happens After the Bank Receives the IHT423
Once the participating bank receives a correctly completed IHT423, it will typically verify that the account exists, that sufficient funds are available and that the request aligns with its own procedures. The bank then transfers the specified sum directly to HMRC, generally within a few working days, though timelines may vary between institutions. HMRC will usually acknowledge receipt and apply the payment against the estate’s IHT account. The executor should retain copies of all correspondence and, where possible, obtain written confirmation from the bank that the transfer has been made, so that the IHT421 (the probate summary) can be progressed without unnecessary delays. It is worth noting that the scheme covers funds held in accounts, not assets such as stocks or property, and the tax on those assets may need to be handled differently — potentially through an instalment arrangement or other funding method.
Common Questions About the Inheritance Tax Direct Payment Scheme
How does the Direct Payment Scheme work?
The Direct Payment Scheme allows an executor or personal representative to authorise a participating bank or building society to transfer funds from the deceased’s account directly to HMRC to settle all or part of the inheritance tax liability before probate is granted. This is significant because, ordinarily, banks will not release funds until probate is obtained — yet HMRC typically requires at least part of the tax to be paid before issuing the grant. The scheme resolves this practical conflict by creating a direct channel between the financial institution and HMRC, bypassing the need for the executor to personally receive and then forward the funds.
What is the Direct Payment Scheme for IHT?
The Direct Payment Scheme is a facility administered by HMRC that enables inheritance tax to be paid from the deceased’s own bank or building society accounts before probate is granted. It is initiated using Form IHT423, which the executor completes and sends to each participating institution holding the deceased’s funds. The scheme is generally used alongside Form IHT400, the main inheritance tax account. Further procedural detail is available in HMRC’s Inheritance Tax Manual at IHTM05091.
Does HMRC give you an option to pay instalments?
Yes, in certain circumstances HMRC may allow inheritance tax to be paid in ten equal annual instalments rather than as a single lump sum. This option is typically available where the estate includes assets that may be difficult to realise quickly — most notably land and property, certain business assets and unlisted shares. However, interest may accrue on outstanding instalments, so it is important to weigh the cost of deferral against the liquidity benefit. Where an estate includes both liquid assets and property, it is generally possible to use the Direct Payment Scheme to settle the tax attributable to liquid assets while applying the instalment option to the property element.
Who qualifies for direct payment?
Any executor or personal representative of an estate in England and Wales may use the Direct Payment Scheme, provided the deceased held funds with a participating bank or building society and the institution has sufficient cleared funds available in the relevant account. There is no minimum estate size requirement, though the scheme is most relevant where the estate’s value exceeds the available thresholds — the standard nil-rate band of £325,000 (frozen until at least April 2030) and, where applicable, the residence nil-rate band of £175,000 — meaning that inheritance tax at 40% is payable on the balance above those thresholds. Estates that fall entirely within the available nil-rate bands will not have an IHT liability to settle in the first place.
What is a DPNi scheme?
A DPNi scheme — short for Direct Payment of National Insurance — is an entirely separate arrangement used by employers and is unrelated to inheritance tax. It is worth clarifying this distinction because the abbreviation occasionally causes confusion when executors or beneficiaries encounter the term during estate administration. The inheritance tax facility described in this article is formally referred to simply as the Inheritance Tax Direct Payment Scheme, and any reference to a DPNi scheme in the context of estate planning almost certainly refers to a different area of tax or employment law entirely.
If you would like to understand how upstream planning — such as trusts, structured gifting or life insurance written in trust — could reduce the IHT liability that the Direct Payment Scheme would otherwise be used to settle, our team is happy to walk through the options with you.
How can we help you?
We’re here to help. Please fill in the form and we’ll get back to you as soon as we can. Or call us on 0117 440 1555.
Important Notice
The content on this website is provided for general information and educational purposes only.
It does not constitute legal, tax, or financial advice and should not be relied upon as such.
Every family’s circumstances are different.
Before making any decisions about your estate planning, you should seek professional advice tailored to your specific situation.
MP Estate Planning UK is not a law firm or solicitors. Trusts are not regulated by the Financial Conduct Authority.
MP Estate Planning UK does not provide regulated financial advice.
We work in conjunction with regulated providers. When required we will introduce Chartered Tax Advisers, Financial Advisers or Solicitors.
