Inheritance Tax Calculator

How an estate’s Inheritance Tax is worked out

Inheritance Tax is charged at 40% on the part of an estate above the available nil-rate bands. Start with everything the person owned – property, savings, investments, possessions and their share of joint assets – then deduct debts and funeral costs. Anything left to a spouse, civil partner or charity is exempt.

Then apply the £325,000 nil-rate band, plus the £175,000 residence nil-rate band if a home goes to children or grandchildren. Gifts made in the seven years before death use up the nil-rate band first.

Three worked estates

Single person, £900,000 estate including a £400,000 home left to their children: the bands total £500,000, so £400,000 is taxed at 40%: £160,000.

Widowed parent, £1,000,000 estate with a £500,000 home to the children and full transfers from the late spouse: £650,000 nil-rate band plus £350,000 residence band covers the whole estate, so the tax is £0.

Larger estate, £2,200,000: the residence band is reduced by £1 for every £2 over £2,000,000, falling to £75,000. Tax is £720,000 on £1,800,000.

Lifetime gifts and the seven-year rule

A gift is free of Inheritance Tax if the giver lives for seven years after making it, unless it was into a trust. If they die sooner, the gift is added back to the estate. Gifts in the three years before death are taxed at the full 40%, and gifts made three to seven years before death get taper relief on the tax due.

Taper relief only reduces tax on the gift itself, and only when gifts in the seven years before death total more than the £325,000 nil-rate band. Example: a £400,000 gift to a child, with death four and a half years later, uses the whole nil-rate band and leaves £75,000 taxable at 24%, £18,000, instead of £30,000.

Gifts that are exempt straight away

A “gift with reservation”, such as giving your home to your children but continuing to live in it rent-free, still counts as part of your estate.

• Small gifts of up to £250 per person each tax year, if no other allowance is used on that person.
• Wedding or civil partnership gifts of up to £5,000 to a child, £2,500 to a grandchild and £1,000 to anyone else.
• Regular gifts from surplus income, such as paying a grandchild’s rent, provided your standard of living is not affected. There is no cash limit, but keep records.
• Gifts between spouses or civil partners living in the UK permanently, and gifts to charities and political parties.

Paying the tax and business or farm assets

Inheritance Tax is due by the end of the sixth month after the death, for example by 31 July for a January death, and interest is charged after that. Tax on property and other assets that take time to sell can be paid in equal yearly instalments over 10 years, usually with interest.

For deaths on or after 6 April 2026, 100% Business and Agricultural Relief is capped at £2.5 million of qualifying property, and any unused allowance can transfer between spouses. Instalments on assets qualifying for these reliefs are interest-free for assets inherited from 6 April 2026.

Inheritance Tax by estate size

The table assumes a single person with no transferred allowances, leaving a home of up to £350,000 to children. It shows how quickly the effective rate rises once the estate passes £500,000.

What executors need to do

• Value everything at the date of death, including the person’s share of joint assets and any gifts in the previous seven years.
• Work out whether tax is due, including any transferable allowances from a spouse who died first.
• If tax is due, report the estate to HMRC on form IHT400 within one year. You cannot apply for probate until this is done.
• Pay at least the tax due on non-instalment assets by the end of the sixth month after death to avoid interest.