Practise calculating Inheritance Tax using the Nil-Rate Band, Residence Nil-Rate Band and 40% rate.
An estate is valued at £1,200,000. Only the standard Nil-Rate Band (£325,000) applies — no residential nil-rate band. What is the Inheritance Tax due at 40%?
Answers accepted within £10
Inheritance Tax (IHT) is a tax on the estate (property, money and possessions) of someone who has died. It is one of the most misunderstood taxes in the UK — many people believe it affects them when it does not, and others with taxable estates plan poorly because they do not understand how the nil-rate bands work.
For 2026/27, the Nil-Rate Band (NRB) is £325,000 — frozen until at least April 2030. IHT is charged at 40% on the value of the estate above the NRB. On an estate of £400,000, the chargeable amount is £75,000 and the IHT is £30,000.
The Residence Nil-Rate Band (RNRB) provides an additional £175,000 of tax-free allowance, but only when the deceased leaves a residential property to direct descendants (children, grandchildren, step-children). Combined, the NRB and RNRB give a potential £500,000 tax-free estate per individual — and up to £1,000,000 for a married couple or civil partnership when transferable nil-rate bands are used.
The RNRB is tapered for very large estates: for every £2 that the estate exceeds £2,000,000, the RNRB is reduced by £1. At £2,350,000 the RNRB is fully withdrawn. This drill focuses on standard cases below the taper threshold.
This drill randomly generates estates with and without the RNRB and asks you to calculate the IHT due. After checking your answer, the worked solution shows the exemption used and the 40% calculation on the chargeable remainder.
Other IHT rules not covered in this drill include the seven-year rule on gifts (gifts made more than seven years before death are exempt), the reduced 36% rate for estates leaving 10%+ to charity, Business Property Relief and Agricultural Property Relief.
£325,000 — frozen until April 2030. No IHT is payable on the first £325,000 of an estate (or £650,000 for a couple using the transferable NRB).
£175,000 of additional IHT-free allowance that applies when a residential property is left to direct descendants. Combined with the standard NRB, it allows up to £500,000 per person tax-free.
40% on the value above the nil-rate bands. A reduced rate of 36% applies if at least 10% of the net estate is left to charity.
Yes — any unused NRB and RNRB from the first spouse to die can be transferred to the surviving spouse, giving up to £650,000 (NRB) and £350,000 (RNRB) combined, totalling up to £1,000,000 tax-free.
Gifts made more than seven years before death are fully exempt (the "seven-year rule"). Gifts within 3 years of death are taxed at the full 40%; between 3 and 7 years, taper relief reduces the rate. The annual exemption is £3,000 per year, and gifts up to £250 per person to any number of recipients are also exempt.
No — it must be a residential property the deceased lived in at some point. The property must be left to direct descendants: children (including adopted, fostered or step-children), grandchildren, or their spouses/civil partners.
The RNRB is reduced by £1 for every £2 that the net estate exceeds £2,000,000. At £2,350,000 the RNRB is fully withdrawn. Very large estates above £2.35M lose the benefit of the RNRB entirely.
IHT must be paid (or arranged) within 6 months of the end of the month of death — before probate is granted. Interest accrues on unpaid IHT from the end of the 6-month period.
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