Paying Inheritance Tax in Scotland: What You Need to Know

When someone dies, dealing with their estate can be complicated, particularly if Inheritance Tax is due. For families in Scotland, there are some important points to understand about how Inheritance Tax works and how it fits into the Scottish process of administering an estate.

Inheritance Tax is a UK tax rather than a tax which is specific to Scotland. The same basic Inheritance Tax rules apply throughout the UK. However, the legal process for dealing with a deceased person’s estate is different in Scotland. In Scotland, the authority normally needed to allow the executors to deal with the deceased’s assets is called Confirmation, rather than probate.

This article explains when Inheritance Tax may be payable, how much might be due and, importantly, how the tax can be paid.

What is Inheritance Tax?

Inheritance Tax is a tax on the estate of someone who has died. An estate can include their property, money, investments, personal possessions and certain other assets.

The standard rate of Inheritance Tax is currently 40%. It is normally charged only on the part of an estate which is above the available tax-free allowances, after taking account of applicable exemptions and reliefs.

Not every estate has to pay Inheritance Tax. In many cases, the value of the estate falls within the available allowances or the assets pass to a spouse, civil partner or charity and are therefore exempt.

It is important, however, not to assume that an estate does not have to be reported simply because no Inheritance Tax is ultimately payable. The executors may still have reporting obligations.

What is the Inheritance Tax threshold?

The main Inheritance Tax allowance is known as the nil-rate band.

For deaths from 6 April 2026, the nil-rate band remains at £325,000. This means that, broadly speaking, the first £325,000 of an individual’s taxable estate can pass without Inheritance Tax. The nil-rate band has been fixed at this level for many years, and legislation now keeps it at £325,000 for the relevant tax years.

There is also a residence nil-rate band, which can provide an additional allowance of up to £175,000 where a qualifying home is passed to direct descendants, such as children or grandchildren.

The residence nil-rate band is subject to detailed conditions. It can also be reduced where the value of the estate exceeds £2 million. The allowance is reduced by £1 for every £2 by which the estate exceeds the £2 million threshold.

This means that, for an individual who qualifies for both allowances, up to £500,000 may potentially pass free of Inheritance Tax.

Can a married couple or civil partners have a £1 million allowance?

Potentially, yes.

Where a person is married or in a civil partnership, an unused proportion of their nil-rate band can generally be transferred to their surviving spouse or civil partner.

The same principle can apply to the residence nil-rate band. As a result, a qualifying surviving spouse or civil partner may potentially have allowances of up to £1 million available when they later die.

The position depends on the circumstances of both deaths and on how the first estate was dealt with. The relevant allowances do not simply transfer automatically without the necessary claim and evidence.

This is one reason why keeping records relating to the first spouse or civil partner’s estate can be important.

When is Inheritance Tax actually payable?

A simple example illustrates how the calculation can work.

Suppose someone dies leaving an estate worth £600,000. If they have a £325,000 nil-rate band and qualify for the full £175,000 residence nil-rate band, their available allowances could total £500,000.

This would leave £100,000 potentially subject to Inheritance Tax.

At 40%, the Inheritance Tax would be £40,000.

This is only an illustration. The actual calculation can be affected by gifts made during the person’s lifetime, debts, exemptions, reliefs, the ownership of assets and the way in which the estate is distributed.

What happens if everything is left to a spouse or civil partner?

Transfers between spouses and civil partners are generally exempt from Inheritance Tax.

For example, if a husband leaves his entire estate to his wife, there would normally be no Inheritance Tax to pay as a result of that transfer.

This can be an important part of estate planning. However, it does not necessarily mean that Inheritance Tax has been avoided altogether. The assets may form part of the surviving spouse’s estate when they later die.

It is therefore important to consider the position of both people rather than looking only at the first death.

What about gifts made before death?

Lifetime gifts can affect the Inheritance Tax position.

Some gifts can be made without an Inheritance Tax charge because specific exemptions apply. Other gifts may become relevant if the person dies within seven years of making them.

This means that executors need to establish whether the deceased made significant gifts or transfers of assets before their death.

The rules can be particularly complicated where a person has given away property but continued to benefit from it. Professional advice should be obtained before assuming that a lifetime gift is outside the estate for Inheritance Tax purposes.

Agricultural and Business Property Relief: important changes from 2026

There have been significant changes to Agricultural Property Relief and Business Property Relief.

The Finance Act 2026 introduced reforms which apply from 6 April 2026. Under the new rules, 100% relief is available within a combined allowance for qualifying agricultural and business property, with relief generally reduced to 50% on qualifying value above that allowance.

The government has set the allowance for the 100% rate at £2.5 million from 6 April 2026.

These changes are particularly important for farming families and business owners in Scotland. A family farm, agricultural land or privately owned business may previously have been expected to qualify for substantial or complete relief, but the position now needs to be considered carefully under the new rules.

The legislation is detailed, and the availability of relief depends on the nature of the assets and the circumstances in which they are owned and used.

What about pensions?

Pensions are another area where the Inheritance Tax rules are changing.

Under legislation contained in the Finance Act 2026, from 6 April 2027 most unused pension funds and pension death benefits will generally be brought within the value of a person’s estate for Inheritance Tax purposes.

There are exceptions, including certain death-in-service benefits and some dependant’s pensions.

This is an important change because pensions have historically often been treated differently from other assets when considering Inheritance Tax.

Anyone with substantial pension savings should therefore review their estate planning in light of the changes coming into effect in April 2027.

Who is responsible for paying Inheritance Tax?

The executors or other personal representatives are normally responsible for dealing with the deceased’s estate and arranging payment of any Inheritance Tax due.

In Scotland, the executors will generally need to deal with HM Revenue & Customs before they can obtain confirmation where Inheritance Tax is payable.

HMRC requires the relevant Inheritance Tax account and supporting information. For a Scottish estate, the C1 inventory for confirmation is also relevant to the process. Once the necessary Inheritance Tax requirements have been dealt with HMRC will send the letter of confirmation (SL189) to the personal representative to forward to the Sheriff’s Court with the C1 application, allowing the executors to proceed with the application for confirmation.

This is one of the important differences between administering an estate in Scotland and administering one in England and Wales.

When does Inheritance Tax have to be paid?

In most cases, Inheritance Tax must be paid by the end of the sixth month after the person’s death.

For example, if someone dies during January, the tax is normally due by 31 July.

Interest may be charged if the tax is not paid by the deadline.

This deadline can create a practical problem for executors. The estate may contain a valuable house or other assets, but the executors may not yet have obtained confirmation and therefore may not be able to access or sell those assets.

Fortunately, there are ways of dealing with this situation.

How can Inheritance Tax be paid?

There are several possible methods of paying the tax.

• Using money in the deceased’s bank accounts: Some banks and financial institutions can release funds directly to HMRC to pay Inheritance Tax before confirmation. This is known as the Direct Payment Scheme. Executors can use form IHT423 for this purpose.
• Using the executors’ own funds: An executor or another person can pay the Inheritance Tax from their own money and seek reimbursement from the estate once funds become available. Care needs to be taken to ensure that the payment is properly recorded.
• Paying by instalments: Certain types of assets may qualify for payment of Inheritance Tax by instalments over up to ten years. This can be particularly relevant where an estate contains property, a business or qualifying agricultural assets which cannot readily be sold. Interest will normally apply to instalment payments, although there are important changes for certain qualifying agricultural and business property from 6 April 2026.
• Applying for payment arrangements where funds cannot immediately be accessed: In some circumstances, HMRC may allow arrangements which enable the executors to obtain confirmation even though the full tax cannot immediately be paid. The executors will generally still be expected to pay as much as they reasonably can.

The most appropriate option will depend on the assets in the estate and how quickly those assets can be accessed or sold.

What if the estate cannot afford to pay?

This is a common concern, particularly where most of the value of an estate is tied up in a house.

The fact that an estate is asset-rich does not necessarily mean that the executors have cash available to pay the tax.

In these circumstances, it may be possible to use the Direct Payment Scheme, arrange payment by instalments or make other arrangements with HMRC.

It is important to deal with the issue promptly. The executors should not simply wait until the estate has been administered before considering how the Inheritance Tax will be paid.

What should executors do?

Dealing with Inheritance Tax is one of the earliest tasks that may need to be addressed after someone dies.

Executors should establish:

• What assets the deceased owned: This includes property, bank accounts, investments, vehicles, personal possessions and other valuable assets. The purpose is to establish the overall value of the estate rather than looking only at the obvious assets.
• What debts and liabilities existed: Certain debts can be deducted when calculating the taxable estate. Executors should therefore identify mortgages, loans, outstanding bills and other legitimate liabilities.
• What gifts were made before death: Lifetime gifts may affect the Inheritance Tax calculation, particularly where they were made within seven years of death.
• Whether any exemptions or reliefs apply: Spouse or civil partner exemption, charitable gifts, the residence nil-rate band, Agricultural Property Relief and Business Property Relief can all affect the amount of tax payable.
• How the tax will be funded: This should be considered at an early stage, particularly if the estate consists mainly of property or other assets which cannot immediately be sold.

Taking these steps early can help avoid unnecessary delays in obtaining confirmation.

Get advice before paying Inheritance Tax

Inheritance Tax calculations can become complicated very quickly. The value of an estate is only one part of the calculation. Lifetime gifts, jointly owned assets, trusts, pensions, agricultural property, businesses and the identity of the beneficiaries can all affect the final position.

The rules are also changing. The reforms to agricultural and business property relief from April 2026 and the changes affecting pensions from April 2027 mean that previous estate-planning arrangements should not simply be assumed to remain effective.

If you are dealing with an estate in Scotland, obtaining professional advice at an early stage can help ensure that the correct tax is calculated, the available reliefs are claimed and the appropriate arrangements are made to fund the tax.

A solicitor can also advise on the Scottish confirmation process and help the executors deal with HMRC as part of the wider administration of the estate.

If you  need advice and you are looking for an experienced solicitor, then please contact our Private Client Team on 01324 622 888 or contact help@randa-fa.co.uk and we would be delighted to assist.

The information in this article is intended as general guidance and does not constitute legal or tax advice. Inheritance Tax rules are complex and can change, so advice should be obtained based on the individual circumstances of the estate.