How to Use the UK Inheritance Tax Calculator
The UK Inheritance Tax Calculator computes the potential IHT liability on an estate, applying the nil rate band (£325,000), residence nil rate band (£175,000 for eligible properties left to direct descendants), transferable nil rate band from a deceased spouse, charitable giving relief, and business property relief.
Enter the total estate value, property included, intended beneficiaries, any charitable bequests, and whether any of a deceased spouse's nil rate band remains unused. The calculator shows the total estate, exemptions and reliefs applied, taxable estate, and IHT at 40% (or 36% for charitable estates).
A crucial nuance is that the residence nil rate band (RNRB) applies only when a qualifying residential property is passed to direct descendants (children, grandchildren, stepchildren). For estates above £2 million, the RNRB tapers away at £1 for every £2 above the threshold. At £2.35 million, the RNRB is fully withdrawn.
📊 Worked Example
Estate valued at £800,000, includes family home worth £350,000, widower leaving to children:
- Nil Rate Band (own + transferred): £650,000
- Residence NRB (own + transferred): £350,000
- Total exemption: £1,000,000
- Taxable estate: £0 (below £1m threshold)
- IHT due: £0
Common Use Cases
- ✅ Estimating your estate's potential IHT liability for planning purposes
- ✅ Understanding how the nil rate band and residence NRB interact
- ✅ Calculating IHT savings from charitable bequests
- ✅ Planning whether lifetime gifts would reduce IHT liability
- ✅ Understanding if transferring your spouse's unused NRB saves tax
- ✅ Assessing whether a trust or whole-of-life policy is needed
Frequently Asked Questions
What is the IHT nil rate band?
The nil rate band (NRB) is £325,000 — the amount of an estate that passes free of IHT. Anything above is taxed at 40%. A married couple or civil partners can combine their NRBs: the unused portion of the first to die's NRB passes to the survivor, potentially creating a £650,000 nil rate band.
What is the residence nil rate band?
The Residence Nil Rate Band (RNRB) is an additional £175,000 (2025/26) that applies when a qualifying residential property is passed to direct descendants (children, stepchildren, grandchildren). Like the standard NRB, it can also be transferred between spouses, giving a couple a potential total exemption of £1,000,000.
Are gifts exempt from IHT?
Yes, with conditions. The annual gift exemption allows £3,000 per year tax-free (plus the previous year's unused allowance). Small gift exemption: up to £250 per person per year. Wedding gifts: up to £5,000 from parents. Gifts from regular income are exempt if they genuinely come from surplus income. Larger gifts are potentially exempt if the donor survives 7 years (PETs).
What is the 7-year rule for gifts?
Gifts made more than 7 years before death are completely exempt from IHT. Gifts within 3 years of death are taxed at the full 40% rate. Between 3–7 years, taper relief applies: 80% tax rate at 3–4 years, 60% at 4–5 years, 40% at 5–6 years, 20% at 6–7 years (all expressed as percentage of the full 40% charge).
Can I reduce IHT through a pension?
Yes. Pensions (defined contribution, SIPPs) are generally outside your estate for IHT purposes, making them one of the most tax-efficient ways to pass wealth. Currently, unused pension funds pass IHT-free to any named beneficiary. However, the 2024 Budget proposed including unspent pensions in estates from April 2027 — this may change the planning picture significantly.