In what situation cannot Inheritance Tax (IHT) be paid in 10 equal annual installments?

Inheritance Tax (IHT) allows for the payment of tax liabilities in 10 equal annual installments under certain conditions. This flexibility is typically applicable to transfers that result in a tax charge, particularly when the tax is due upon the death of the donor.

When it comes to Chargeable Lifetime Transfers (CLTs), which occur when an individual makes a gift that potentially incurs a tax liability above the nil-rate band while still alive, the situation differs. If a CLT is made and the donor is liable for the tax, the installment payment option is not available. This restriction stems from the nature of CLTs, where the tax needs to be settled in full based on the rules governing gifts made within seven years of death, rather than allowing the split payment in 10 installments. Therefore, in cases where the donor has made a CLT that incurs liability, but the donor is the one responsible for the tax, installment payments are not permitted.

Understanding these stipulations highlights the circumstances under which IHT becomes payable and illustrates the specific rules governing different forms of transfers, ensuring proper tax compliance.