Inheritance Tax Calculator UK

How UK Inheritance Tax Works

Inheritance Tax (IHT) is a tax on the estate of someone who has died, including their property, money, possessions, and certain gifts made during their lifetime. The standard IHT rate is 40%, charged on the value of the estate above the nil-rate band (NRB) of £325,000. A reduced rate of 36% applies if 10% or more of the net estate is left to charity.

Nil-Rate Band and Residence Nil-Rate Band

The NRB of £325,000 is the basic tax-free threshold. In addition, the Residence Nil-Rate Band (RNRB) provides an extra £175,000 when a main residence is passed to direct descendants such as children or grandchildren. Together, these give a potential tax-free allowance of £500,000 per person. However, both the NRB and RNRB taper for estates valued above £2 million, with the RNRB reducing by £1 for every £2 above that threshold.

Spouse Exemption and Transferable Allowances

Assets passing to a spouse or civil partner are completely exempt from IHT, regardless of value. Furthermore, any unused NRB and RNRB from the first spouse to die can be transferred to the surviving spouse. This means a married couple could potentially pass on up to £1,000,000 free of inheritance tax when the surviving spouse dies.

Gifts and Taper Relief

Gifts made more than seven years before death are fully exempt. Gifts within three years are taxed at the full 40% rate. Between three and seven years, taper relief gradually reduces the IHT rate on gifts: 32% for gifts 3-4 years old, 24% for 4-5 years, 16% for 5-6 years, and 8% for 6-7 years. Annual gifts of up to £3,000 are always exempt, as are small gifts of up to £250 to any number of recipients.