Inheritance Tax Calculator
Estimate UK inheritance tax liability with nil-rate band, residence nil-rate band and taper relief calculations
Married couples can transfer unused allowance to surviving spouse
Inheritance Tax Calculation
Nil Rate Band
£325,000
Gross Estate
£510,000
Taxable Estate
£185,000
IHT Due at 40%
£74,000
Net to Beneficiaries:£426,000
How It Works
The first £325,000 is free from tax. Above that, 40% IHT applies. Gifts made more than 7 years ago don't count.
Not legal or tax advice. IHT rules are complex. Consult a solicitor or tax advisor for your situation.
How UK Inheritance Tax Is Calculated
Inheritance Tax is 40% on the value of your estate above the £325,000 nil-rate band. If you leave your main home to direct descendants (children, grandchildren) you also get the £175,000 residence nil-rate band on top, taking your tax-free allowance to £500,000. A married couple combines both, giving up to £1,000,000 tax-free if both bands are fully used and the home is left to descendants.
An estate worth £600,000 with the home left to children pays IHT only on £100,000 (the slice above the £500,000 combined allowance), giving a £40,000 tax bill. The same estate with no descendants pays on £275,000 (above the £325,000 plain nil-rate band), giving a £110,000 tax bill - a £70,000 swing for the same money based purely on who inherits. The frozen nil-rate band has been £325,000 since 2009 and is locked at this level until April 2030.
The 7-Year Rule and Lifetime Gifting
Gifts made more than 7 years before death are completely outside the estate for IHT. Gifts made between 3 and 7 years before death attract taper relief, reducing the rate from the full 40% on a sliding scale: 32% for 3-4 years, 24% for 4-5 years, 16% for 5-6 years, 8% for 6-7 years. Gifts under 3 years before death are taxed at the full 40%. Crucially, taper relief only applies to gifts above the nil-rate band, so small gifts within the £325,000 threshold get no benefit from the taper.
Annual exemptions are useful but small: £3,000 per year to anyone (with one year of carry-forward), £250 small gifts to as many people as you like, and unlimited gifts out of normal income provided your standard of living is unaffected. Wedding gifts have higher limits: £5,000 from parents, £2,500 from grandparents, £1,000 from anyone else. The big planning move for substantial estates is to start gifting major sums early - a £200,000 gift made 8 years before death saves £80,000 in IHT compared to the same gift made on the death bed. Always combine this with the [UK Tax Calculator](/uk-tax-calculator) for the income tax impact during your lifetime.
IHT Liability by Estate Value (Single Person, Home to Children)
| Estate Value | Allowance | Taxable | IHT at 40% |
|---|---|---|---|
| £300,000 | £500,000 | £0 | £0 |
| £500,000 | £500,000 | £0 | £0 |
| £750,000 | £500,000 | £250,000 | £100,000 |
| £1,000,000 | £500,000 | £500,000 | £200,000 |
| £2,000,000 | £500,000 (full RNRB) | £1,500,000 | £600,000 |
| £2,500,000 | £325,000 (RNRB tapered out) | £2,175,000 | £870,000 |
Frequently Asked Questions
What is the residence nil-rate band taper?
The £175,000 residence nil-rate band reduces by £1 for every £2 the estate exceeds £2 million. So at £2.35 million estate value, the residence nil-rate band has tapered out completely, leaving only the £325,000 standard nil-rate band. Married couples lose both spouse's RNRBs if their combined estate sits above the taper. This creates an effective marginal rate above 60% in the £2m to £2.35m band, so estate planning around this threshold is worth taking seriously.
Will my pension be subject to IHT after April 2027?
Most unused pension pots will be drawn into the IHT estate from April 2027 under government changes announced in late 2024. Currently, defined contribution pensions sit outside the estate; beneficiaries who inherit before age 75 receive the pot tax-free, and those who inherit at 75+ pay only income tax on withdrawals. The 2027 change does not abolish those routes but adds the pot to the IHT calculation, potentially adding 40% on top. Check what your provider's communications say closer to the date.
Is life insurance counted in the estate?
Yes, by default - the payout adds to the estate and may push it above the IHT threshold. Writing the policy in trust is the standard fix. The proceeds then pass directly to beneficiaries without entering the estate, so neither IHT nor probate delays apply. Most providers offer trust forms free of charge; ask your insurer or solicitor when you take out the policy. Existing policies can usually be put into trust retrospectively.
Can I avoid IHT by giving my house to my children?
Not easily. If you continue living in the property rent-free after gifting it, HMRC treats it as a gift with reservation of benefit, and the property stays in your estate for IHT. To genuinely remove it, you would need to pay full market rent to your children (which is taxable income to them) or move out completely. Most attempts to give the house away while staying in it fail this test. The standard advice is to use the residence nil-rate band rather than try to give the house away during life.
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