Inheritance Tax Calculator

How UK Inheritance Tax works

What is Inheritance Tax?

Inheritance Tax (IHT) is a tax on the estate — the total value of property, money and possessions — of someone who has died. It is paid out of the estate before it is distributed to beneficiaries. In 2026/27, IHT is charged at 40% on the portion of an estate that exceeds the available threshold.

Only around 4–5% of UK estates pay IHT, but the combination of rising property prices and frozen thresholds means more families are being pulled into scope. Understanding the rules — and planning early — can make a meaningful difference to how much of an estate passes to heirs.

The Nil-Rate Band (NRB)

Every individual has a nil-rate band of £325,000. No IHT is due on the first £325,000 of an estate. This band has been frozen at this level since 2009 and is currently frozen until at least April 2030.

Any estate below the NRB passes to heirs free of IHT. Above it, the excess is taxed at 40% (or 36% if at least 10% goes to charity).

The Residence Nil-Rate Band (RNRB)

An additional allowance of £175,000 — the Residence Nil-Rate Band — is available when a residential property is passed to direct descendants (children, grandchildren, step-children, adopted children). This can bring the total threshold to £500,000 for a single person.

The RNRB is capped at the value of the property being inherited. If the property is worth less than £175,000, the RNRB is restricted to that value. The RNRB also tapers for larger estates: for every £2 the estate exceeds £2,000,000, the RNRB reduces by £1. It reaches zero for estates above £2,350,000 (or £2,700,000 if a transferred RNRB is also claimed).

Transferable allowances from a predeceased spouse

When one spouse or civil partner dies and leaves everything to the surviving partner (taking advantage of the spousal exemption), their NRB and RNRB go unused. On the death of the surviving partner, those unused allowances transfer across — potentially doubling the available NRB to £650,000 and the RNRB to £350,000, giving a combined threshold of £1,000,000.

The transfer is based on the percentage unused, not the monetary amount. So if the first spouse used 50% of their NRB, the survivor inherits 50% of the current NRB value (£162,500), not 50% of the NRB at the time of their death. For this calculator, the toggle assumes the full NRB and/or RNRB was unused (100% transfer).

Gifts and the 7-year rule

Gifts made during your lifetime can reduce the size of your estate for IHT purposes, but the rules are time-sensitive:

• Gifts made more than 7 years before death are fully exempt — they fall outside the estate entirely.
• Gifts made within 7 years are called Potentially Exempt Transfers (PETs) and may be subject to IHT. If you die within 7 years of making a gift, it is added back to your estate.
• Taper relief applies to gifts made between 3 and 7 years before death, reducing the IHT due on those specific gifts (not the overall rate): 20% reduction for gifts 3–4 years before death, 40% for 4–5 years, 60% for 5–6 years, 80% for 6–7 years.

Certain gifts are always exempt: the annual £3,000 allowance (and £3,000 from a prior year if unused), gifts of up to £250 per person per year to any number of people, regular gifts out of normal income, and wedding/civil partnership gifts up to certain limits.

How to reduce an IHT liability

There are several legitimate strategies that can reduce the IHT payable on an estate:

• Gifting early: making gifts more than 7 years before death removes them from the estate. The key is starting early enough.
• Pensions: pension funds are generally outside the estate for IHT purposes (though this is subject to change from April 2027). Keeping money in a pension rather than drawing it down can reduce the taxable estate.
• Trusts: assets placed in certain trusts can be removed from the estate after 7 years. Trusts are complex — professional advice is essential.
• Charity: leaving 10% or more of the net estate to a qualifying charity reduces the IHT rate from 40% to 36%, and the charitable bequest itself is exempt.
• Business Property Relief: shares in unquoted trading companies (including AIM shares held for 2+ years) and interests in trading businesses may qualify for 50% or 100% BPR, significantly reducing IHT on those assets.
• Life insurance: a whole-of-life policy written in trust can provide a lump sum to pay an IHT bill without adding to the estate.

IHT planning is complex and highly personal. The rules around trusts, domicile, business relief and gifts interact in ways that can easily go wrong without professional guidance. Consider consulting a regulated financial planner or solicitor specialising in estate planning.