Inheritance Tax Calculator — What Your Estate Would Actually Owe

Inheritance Tax (IHT) is charged at 40% on the value of an estate above the available tax-free thresholds. It's paid by the estate itself — through the executor or administrator — before beneficiaries receive anything, not by individual beneficiaries out of their own pocket.

The rate drops to 36% on the whole taxable portion if at least 10% of the net estate is left to charity — a genuinely meaningful reduction worth factoring into estate planning if charitable giving is already part of your intentions.

The standard nil-rate band (NRB) is £325,000 per person — the first slice of any estate that's completely tax-free. It's been frozen at this exact figure since 2009, and is set to remain frozen until at least April 2031. With property values rising steadily over that period, more ordinary estates are pulled into the IHT net every year, purely from this freeze rather than any change in the underlying tax rules.

The residence nil-rate band (RNRB) adds a further £175,000 if you leave your main home to direct descendants — children, grandchildren, step-children, and adopted children. Combined with the standard NRB, that's up to £500,000 per person.

There's an important taper worth knowing: the RNRB reduces by £1 for every £2 the estate's total value exceeds £2 million, disappearing entirely for estates above roughly £2.35 million. If your estate sits anywhere near that £2 million mark, this taper genuinely changes the maths and is worth modelling carefully.

Gifts made more than 7 years before death fall entirely outside your estate for IHT purposes. Gifts made within that window are taxed on a sliding scale called taper relief, and it's worth being precise about how this actually works, since it's commonly misunderstood.

The common misconception: taper relief does not begin from year one. Die within the first 3 years and the gift is taxed at the full 40% if it exceeds your remaining nil-rate band — the sliding scale only kicks in from year 3 onward. It's also worth knowing that the tax liability on a failed gift generally falls on the recipient, not the estate, which can be a genuine shock for a beneficiary who wasn't expecting it.

Every individual also has a £3,000 annual exemption (which can carry forward one unused year), plus smaller exemptions for wedding gifts (£5,000 to a child, £2,500 to a grandchild) and regular gifts made from genuine surplus income.

This is genuinely significant and worth planning around now, not later. From 6 April 2027, most unused defined contribution pension funds and death benefits will be included in your estate for IHT purposes — reversing decades of pensions sitting entirely outside the IHT net. HMRC estimates around 10,500 estates will face IHT for the first time as a direct result of this change.

This reverses the order in which it has traditionally made sense to spend down retirement assets. Where drawing pension income last (and ISAs or other savings first) used to be the standard advice — since pensions sat outside the estate — the calculation genuinely changes once pensions themselves become taxable on death. If you die aged 75 or over, beneficiaries may also face Income Tax on withdrawals, on top of any IHT. This is precisely the kind of shift worth discussing with a financial adviser well before April 2027, not after.

Use both spouses' allowances by structuring wills to ensure unused NRB and RNRB transfer correctly, and by actively claiming the transfer on the second death.

Give early and survive seven years — the single most effective lever for larger estates, provided you can genuinely afford to give the money away.

Leave 10%+ to charity for the reduced 36% rate — since the charitable gift itself is exempt, this can sometimes leave other beneficiaries with more than a smaller, non-qualifying gift would.

Life insurance written in trust pays out entirely outside the estate and can specifically cover an anticipated IHT bill, so the family isn't forced to sell the home or a business simply to pay HMRC. Our guide to whole of life insurance covers exactly this strategy in depth.

An estate worth £800,000, with the home left to children. Available threshold: £325,000 NRB + £175,000 RNRB = £500,000. Taxable estate: £800,000 − £500,000 = £300,000. IHT at 40%: £120,000. Beneficiaries receive £680,000.

Now the same £800,000 estate, but as the second death of a married couple, with both spouses' allowances available: £650,000 combined NRB + £350,000 combined RNRB = £1,000,000 threshold. The entire £800,000 estate is covered. IHT owed: £0.

Official sources & further reading: check current thresholds at GOV.UK, read general estate planning guidance at MoneyHelper, and confirm your position with a qualified solicitor. Consider whole of life insurance to cover an anticipated bill, or browse every tool on the mortgage calculators homepage.