What is Inheritance Tax Calculator (UK)?
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Inheritance Tax (IHT) is a UK tax charged on the estate (the total value of money, possessions, and property) of a person who has died. It is paid from the estate before assets are distributed to beneficiaries. For 2024/25, IHT is charged at 40% on the taxable estate above the nil-rate band (NRB) of £325,000 — a threshold that has been frozen until at least 2028. On top of the NRB, a Residence Nil-Rate Band (RNRB) of £175,000 applies when a main home or its value is passed to direct descendants (children, grandchildren, stepchildren). This means a single individual can pass up to £500,000 free of IHT if they leave their home to direct descendants. For married couples and civil partners, both the NRB and RNRB are transferable to the surviving spouse, meaning that as a couple you can jointly pass up to £1,000,000 free of IHT. The RNRB is tapered for estates over £2 million — reduced by £1 for every £2 above this threshold. A reduced IHT rate of 36% applies when at least 10% of the net estate is left to registered charities. The 7-year rule means that gifts made more than 7 years before death are completely exempt from IHT. Gifts made within 7 years attract taper relief on a sliding scale (100% tax on gifts within 3 years, reducing to 20% tax on gifts made between 6 and 7 years before death). Annual gift allowances, small gift exemptions, and exemptions for wedding gifts also apply.
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Formula
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IHT = max(0, (Estate − NRB − RNRB − Exemptions) × 40%). Reduced rate: 36% if charitable bequest ≥ 10% of net estate. Taper relief on gifts: tax reduced by 20%–80% depending on years before death (3–7 year scale).Variable Legend
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| Symbol | Name | Unit | Description |
|---|---|---|---|
| IHT | Inheritance Tax = | — | Inheritance Tax = (E − NRB − RNRB − Exemptions) × 40% |
How to Inheritance Tax Calculator (UK)
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- 1Add up the total value of all assets in the estate: property, savings, investments, businesses, vehicles, and personal possessions
- 2Deduct allowable debts and liabilities: mortgages, outstanding loans, funeral costs
- 3Subtract the Nil-Rate Band (£325,000) — or up to £650,000 if the deceased's spouse or civil partner did not use their NRB
- 4Subtract the Residence Nil-Rate Band (£175,000) if a main home is left to direct descendants — up to £350,000 combined for a couple
- 5Add back any chargeable gifts made within 7 years before death (using the 7-year rule and taper relief)
- 6Apply the 40% IHT rate to the remaining taxable estate; use 36% if at least 10% of the net estate is donated to charity
- 7IHT must be paid within 6 months of death; instalments over 10 years are permitted for illiquid assets like property
Worked Examples
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£500,000 − £325,000 NRB = £175,000 taxable; £175,000 × 40% = £70,000
Without a property or charitable gifts, only the standard NRB applies. The RNRB is not available as no qualifying home is being passed to descendants.
£700,000 − £325,000 NRB − £175,000 RNRB = £200,000 taxable; × 40% = £80,000
Both the NRB and RNRB are available. The full £500,000 combined allowance reduces the taxable estate to £200,000.
£950,000 − £650,000 NRB − £350,000 RNRB = −£50,000 (no IHT)
A couple's combined NRBs and RNRBs total £1,000,000. This estate falls below that combined threshold so no IHT is due.
Net estate after charity: £1,350,000; taxable: £1,025,000; 36% rate: £369,000. Without charity bequest: £470,000 at 40%
Leaving 10% to charity reduces IHT by 4 percentage points (40% → 36%), saving the estate £41,000 while giving £150,000 to charity.
Real-World Applications
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Estimating IHT liability for estate planning and will preparation, representing an important application area for the Uk Inheritance Tax in professional and analytical contexts where accurate uk inheritance tax calculations directly support informed decision-making, strategic planning, and performance optimization
Evaluating the benefit of making lifetime gifts to reduce the taxable estate, representing an important application area for the Uk Inheritance Tax in professional and analytical contexts where accurate uk inheritance tax calculations directly support informed decision-making, strategic planning, and performance optimization
Deciding whether to leave assets to charity to qualify for the 36% reduced IHT rate, representing an important application area for the Uk Inheritance Tax in professional and analytical contexts where accurate uk inheritance tax calculations directly support informed decision-making, strategic planning, and performance optimization
Calculating whether Business Property Relief shields business assets from IHT, representing an important application area for the Uk Inheritance Tax in professional and analytical contexts where accurate uk inheritance tax calculations directly support informed decision-making, strategic planning, and performance optimization
Planning the transfer of family homes to children using the Residence Nil-Rate Band, representing an important application area for the Uk Inheritance Tax in professional and analytical contexts where accurate uk inheritance tax calculations directly support informed decision-making, strategic planning, and performance optimization
Special Cases
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Business Property Relief (BPR)
In the Uk Inheritance Tax, this scenario requires additional caution when interpreting uk inheritance tax results. The standard formula may not fully account for all factors present in this edge case, and supplementary analysis or expert consultation may be warranted. Professional best practice involves documenting assumptions, running sensitivity analyses, and cross-referencing results with alternative methods when uk inheritance tax calculations fall into non-standard territory.
Regular Gifts from Income
{'title': 'Regular Gifts from Income', 'body': "Gifts that form part of normal expenditure from surplus income (not capital) are fully exempt from IHT with no seven-year waiting period. These must be habitual, made from regular income, and must not reduce the donor's standard of living."}. In the Uk Inheritance Tax, this scenario requires additional caution when interpreting uk inheritance tax results. The standard formula may not fully account for all factors present in this edge case, and supplementary analysis or expert consultation may be warranted. Professional best practice involves documenting assumptions, running sensitivity analyses, and cross-referencing results with alternative methods when uk inheritance tax calculations fall into non-standard territory.
Discretionary Trusts
In the Uk Inheritance Tax, this scenario requires additional caution when interpreting uk inheritance tax results. The standard formula may not fully account for all factors present in this edge case, and supplementary analysis or expert consultation may be warranted. Professional best practice involves documenting assumptions, running sensitivity analyses, and cross-referencing results with alternative methods when uk inheritance tax calculations fall into non-standard territory.
Overseas Assets and Domicile
In the Uk Inheritance Tax, this scenario requires additional caution when interpreting uk inheritance tax results. The standard formula may not fully account for all factors present in this edge case, and supplementary analysis or expert consultation may be warranted. Professional best practice involves documenting assumptions, running sensitivity analyses, and cross-referencing results with alternative methods when uk inheritance tax calculations fall into non-standard territory.
Pension Changes from 2027
In the Uk Inheritance Tax, this scenario requires additional caution when interpreting uk inheritance tax results. The standard formula may not fully account for all factors present in this edge case, and supplementary analysis or expert consultation may be warranted. Professional best practice involves documenting assumptions, running sensitivity analyses, and cross-referencing results with alternative methods when uk inheritance tax calculations fall into non-standard territory.
UK Inheritance Tax Key Thresholds 2024/25
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| Allowance | Amount | Condition |
|---|---|---|
| Nil-Rate Band (NRB) | £325,000 | Available to all estates |
| Residence NRB (RNRB) | £175,000 | Home passed to direct descendants |
| Transferable NRB (couple) | Up to £650,000 | Both NRBs combined |
| Transferable RNRB (couple) | Up to £350,000 | Both RNRBs combined |
| Maximum combined (couple) | £1,000,000 | NRB + RNRB × 2 |
| RNRB taper | Reduces above £2M | £1 per £2 over £2M estate |
| Standard IHT rate | 40% | On taxable estate |
| Charitable giving rate | 36% | If 10%+ to registered charities |
Frequently Asked Questions
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How does the 7-year rule work?
Gifts made more than 7 years before death are fully exempt from IHT. Gifts made within 7 years are potentially exempt transfers (PETs). If the donor dies within 7 years, taper relief reduces the IHT charge: gifts 3–4 years before death pay 80% of the IHT due; 4–5 years 60%; 5–6 years 40%; 6–7 years 20%.
How does the Residence Nil-Rate Band (RNRB) work?
The Residence Nil-Rate Band (RNRB) provides an additional tax-free allowance when a main home is passed to direct descendants, such as children or grandchildren. For 2024/25, this allowance is £175,000, bringing the potential total tax-free allowance to £500,000 per individual when combined with the standard Nil-Rate Band of £325,000. It applies if the deceased's estate includes a home, and the home is passed to qualifying beneficiaries. The RNRB is tapered for estates valued over £2 million, reducing by £1 for every £2 that the net value of the estate exceeds this threshold.
Can unused Inheritance Tax allowances be transferred between spouses or civil partners?
Yes, any unused portion of a deceased spouse's or civil partner's Nil-Rate Band (NRB) and Residence Nil-Rate Band (RNRB) can be transferred to the surviving partner. This means a surviving spouse could potentially claim up to double the allowances, totalling £650,000 for the NRB and £350,000 for the RNRB, making a combined £1 million in tax-free allowances. To claim this, the personal representatives of the second spouse to die must make an application to HMRC.
What are some common Inheritance Tax exemptions and reliefs?
Gifts and bequests made to a spouse or civil partner are generally exempt from Inheritance Tax, provided the recipient is domiciled in the UK. Gifts to qualifying charities, political parties, or national institutions are also exempt, reducing the taxable value of the estate. Business Relief (BR) and Agricultural Relief (AR) can reduce the value of certain business or agricultural property by 50% or 100% for IHT purposes, if specific conditions regarding ownership and use are met.
Who is responsible for paying Inheritance Tax, and when must it be paid?
The executors or administrators of the deceased's estate are legally responsible for calculating and paying any Inheritance Tax due. IHT must generally be paid by the end of the sixth month after the person died; for example, if someone died in January, the tax is due by the end of July. Interest will be charged on any tax paid late. It is possible to pay IHT in instalments on certain assets, such as property, if agreed with HMRC.
Common Mistakes to Avoid
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- !Assuming joint ownership means the RNRB automatically applies — the home must be left to direct descendants, not just jointly owned
- !Forgetting to document regular gifts from income, which are a powerful IHT planning tool but must be evidenced
- !Making large gifts within 7 years of death without considering taper relief and the impact on the estate
- !Ignoring the RNRB taper for estates over £2 million — estates above £2.35M lose the RNRB entirely
- !Assuming pensions are permanently outside IHT — this changes from April 2027
- !Delaying IHT payment beyond 6 months from death, triggering HMRC interest charges
Pro Tip
Consider making gifts from surplus income — documented with a simple letter each time — rather than gifts from capital. Income gifts avoid the 7-year clock entirely and can substantially reduce your estate over time.
Did you know?
Inheritance Tax is often called 'the voluntary tax' by estate planners because so many legal ways exist to reduce it. In 2022/23, only around 4.4% of UK deaths resulted in an IHT bill — yet it raised £7.1 billion for the Treasury.
References
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