Inheritance Tax Calculator UK

What is Inheritance Tax?

Inheritance Tax (IHT) is a tax on the estate (property, money and possessions) of someone who has died. It’s charged at 40% on the value of an estate above the tax-free threshold, currently £325,000 for 2025/26.

Current Inheritance Tax Thresholds 2025/26

When Do You Qualify for the Residence Nil Rate Band?

The additional £175,000 residence nil rate band is available when you leave your main residence to direct descendants, which includes:

• Children (including adopted, step-children, and foster children)
• Grandchildren and great-grandchildren
• Step-grandchildren where the step-parent is a direct descendant

Important: The residence nil rate band begins to reduce if your total estate exceeds £2 million, reducing by £1 for every £2 above this threshold.

How Inheritance Tax is Calculated

Step 1: Value the Estate

The estate includes all assets owned at death, including:

• Property (main residence and other properties)
• Bank accounts and savings
• Investments and shares
• Personal possessions and vehicles
• Life insurance policies
• Gifts made within 7 years before death

Step 2: Apply Exemptions and Reliefs

• Spouse/Civil Partner Exemption: Unlimited transfers between UK-domiciled spouses
• Charity Exemption: Gifts to registered charities are exempt
• Business Relief: Up to 100% relief on qualifying business assets
• Agricultural Relief: Up to 100% relief on qualifying agricultural property

Step 3: Calculate Tax

After applying all allowances and exemptions, inheritance tax is charged at:

• 40% on the amount above the tax-free threshold
• 36% if at least 10% of the net estate is left to charity

Inheritance Tax Planning Strategies

Annual Exemptions

You can give away £3,000 each year without it counting towards inheritance tax. This allowance can be carried forward for one year if unused.

Small Gifts

You can make unlimited gifts of up to £250 per person per year, as long as you haven’t used another exemption for that person.

Gifts for Weddings

• £5,000 to a child
• £2,500 to a grandchild or great-grandchild
• £1,000 to anyone else

Seven-Year Rule

Gifts become exempt from inheritance tax if you survive for 7 years after making them. If you die within 7 years, the gifts may be subject to inheritance tax on a sliding scale:

• 0-3 years: 40% tax rate applies
• 3-4 years: 32% tax rate
• 4-5 years: 24% tax rate
• 5-6 years: 16% tax rate
• 6-7 years: 8% tax rate

Frequently Asked Questions

Do I need to pay inheritance tax on my pension?

Most pension schemes don’t form part of your estate for inheritance tax purposes, as they’re usually held in trust. However, this may change from April 2027 following recent legislative proposals.

What happens if my estate is just over the threshold?

Only the amount above the threshold is taxed. For example, if your estate is worth £350,000 and you have a £325,000 allowance, inheritance tax would be charged on £25,000 (£10,000 at 40%).

Can inheritance tax be paid in instalments?

Yes, for certain assets like property and shares in unlisted companies, inheritance tax can be paid in 10 equal annual instalments. Interest may be charged on outstanding amounts.

What if I’m not UK domiciled?

Different rules apply for non-UK domiciled individuals. Generally, inheritance tax is charged on UK assets only, though this is subject to complex rules and recent legislative changes.

How often do the thresholds change?

The nil rate band has been frozen at £325,000 since 2009 and is currently frozen until at least 2028. The residence nil rate band was introduced in 2017 and reached its full value of £175,000 in 2020.