Inheritance Tax Calculator

Inheritance Tax (IHT) is charged at 40% on the value of an estate above the available nil-rate bands when someone dies. Every individual has a Nil-Rate Band (NRB) of £325,000. If you leave your main residence to a direct descendant (child, stepchild, adopted child, grandchild), an additional Residence Nil-Rate Band (RNRB) of £175,000 applies — taking the threshold to £500,000 for a single person. Both allowances are transferable between spouses or civil partners, so a married couple can pass up to £1 million tax-free in 2025/26 (2 × £325,000 + 2 × £175,000), provided the RNRB conditions are met. This calculator estimates the IHT liability on an estate by combining all assets (property, investments, savings, possessions, life insurance not in trust), deducting liabilities (mortgage, debts, funeral costs), applying the NRB and RNRB based on family circumstances, and taxing the residue at 40% — or 36% if at least 10% of the net estate is left to charity. The RNRB tapers by £1 for every £2 of estate value above £2 million, hitting zero at £2.35m for a single estate (£2.7m for a couple). The 7-year rule on gifts is critical: gifts made more than 7 years before death are normally exempt; gifts within 7 years use the NRB first, then attract tapered tax (40% in years 0-3, sliding to 8% by years 6-7). Annual exemptions include the £3,000 yearly gift allowance, unlimited small gifts of £250 per person, regular gifts out of surplus income, and wedding gifts (£5,000 to a child). Business Relief gives 100% IHT relief on qualifying unlisted/AIM shares and trading businesses held 2+ years — but from April 2026, only the first £1m of qualifying business and agricultural property gets 100% relief; above that the rate halves to 20%. A major upcoming change: from April 2027 the Government plans to bring most unused pension funds into the IHT estate calculation — a significant reform that will affect drawdown legacy planning. This calculator uses 2025/26 rules and does not yet model the 2027 pension change, IHT instalment options for property and businesses, or domicile-based exemptions. For estates with overseas assets, lifetime trusts, or business succession planning, get qualified professional advice — the rules are complex and HMRC scrutiny on Business Relief and gifting is intense.