Inheritance Tax Calculator (UK 2026/27)

UK Inheritance Tax Guide

What should I know about IHT Thresholds 2026/27?

Inheritance Tax is charged at 40% on the taxable estate above the threshold. The nil-rate band (NRB) is £325,000 per person and has been frozen at this level since 2009. The Residence Nil-Rate Band (RNRB) adds up to £175,000 when a main residence is left to direct descendants (children, grandchildren, step-children). Combined, a single person can leave up to £500,000 tax-free. For married couples and civil partners, unused allowances can be transferred, giving a combined threshold of up to £1,000,000 for a surviving spouse leaving the family home to direct descendants.

What should I know about Spouse and Civil Partner Exemption?

Transfers between UK-domiciled spouses and civil partners are entirely exempt from IHT — no limit. Assets passing to a surviving spouse do not use up any nil-rate band. On the surviving spouse's death, any unused NRB and RNRB from the first spouse can be claimed, effectively doubling the threshold. This is why IHT planning is particularly important after the second death, when the combined estate above £1,000,000 (or £650,000 if no property left to children) becomes taxable.

What should I know about The 10% Charity Reduction?

If 10% or more of the net estate (after deductions but before the 40% tax) is left to charity, the IHT rate reduces from 40% to 36%. For a £1,000,000 estate with a £500,000 threshold, the taxable estate is £500,000. The 10% threshold for the reduced rate is £50,000 (10% of £500,000). Leaving £50,000+ to charity: tax = 36% × £450,000 = £162,000 instead of 40% × £500,000 = £200,000 — the charity donation and reduced rate combine to save more than expected.

What's the key thing to understand about IHT Planning Strategies?

The 7-year rule: gifts made more than 7 years before death are completely exempt. Gifts within 7 years use the NRB and may attract taper relief (40%→32%→24%→16%→8%→0% for years 3–7). Annual gift exemption: £3,000 per year can be given free of IHT regardless. Wedding gifts: £5,000 to a child, £2,500 to a grandchild. Normal expenditure out of income is exempt if it does not reduce the standard of living. Business Property Relief (100%) and Agricultural Property Relief (100%) can significantly reduce or eliminate IHT on qualifying business and farm assets, though reforms taking effect from April 2026 are reducing the generosity of these reliefs for larger estates — take professional advice if this applies to you.

What's the key thing to understand about The Nil-Rate Band and Transferable Allowance?

UK inheritance tax is charged on an estate above a tax-free threshold known as the nil-rate band, with everything above it generally taxed at a standard rate — though gifts to a spouse, civil partner, or registered charity are usually exempt entirely regardless of value. A particularly valuable feature is that any portion of the nil-rate band unused on the first spouse or civil partner's death can be transferred to increase the surviving partner's own nil-rate band, meaning a couple can often pass on a combined allowance of roughly double the single-person threshold if the first death's allowance was unused (for example, because everything passed to the surviving spouse tax-free). There's also an additional residence nil-rate band available when a main home is passed to direct descendants (children or grandchildves), which further increases the tax-free threshold for many estates but tapers away for larger estates above a set value. Because these allowances interact in ways that depend on exactly how a first spouse's will was structured and what was actually inherited, estates near the combined threshold often benefit from a solicitor's review rather than relying on a simple single-person threshold figure.

What should I know about Gifting During Your Lifetime?

Gifts made during your lifetime can reduce the eventual inheritance tax bill on your estate, but the rules depend heavily on timing and type of gift. Gifts to individuals generally fall outside your estate for inheritance tax purposes only if you survive seven years after making them — if you die within seven years, the gift may still be counted as part of your estate, with 'taper relief' reducing the tax rate (not the value) on gifts made between three and seven years before death. Certain gifts are exempt regardless of timing: an annual gift allowance that can be given away each year with no seven-year rule attached, small gifts to multiple individuals, wedding or civil partnership gifts up to certain limits, and gifts that are 'normal expenditure out of income' — regular gifts from surplus income that don't reduce your standard of living, which can be entirely exempt with no limit and no seven-year wait, provided they're genuinely regular and genuinely from income rather than capital. Because gifting rules are detailed and the record-keeping requirements (especially for the normal-expenditure-out-of-income exemption) matter if HMRC later queries the estate, anyone planning substantial lifetime gifting for inheritance tax purposes should keep clear records and consider professional advice, particularly where the estate is likely to be close to or above the relevant thresholds.

IHT Rates and Reliefs at a Glance (Reference Table)

Several thresholds and reliefs interact to determine how much of an estate is actually taxable. The figures below are current typical values — always check the latest HMRC figures for the tax year in question, since thresholds can be frozen or adjusted by future Budgets.

Worked Example: £900,000 Estate With the Home Left to Children Consider an estate worth £900,000, including a home worth £400,000 left directly to the deceased's children. With no prior spousal transfer, the available threshold is the NRB (£325,000) plus the RNRB (£175,000) = £500,000. The taxable estate is therefore £900,000 - £500,000 = £400,000, taxed at 40% = £160,000 of inheritance tax due. However, if this person's spouse died first and left their entire estate to them, both unused allowances transfer across, doubling the combined threshold to £1,000,000. In that case, the £900,000 estate would fall entirely within the available allowance, and no inheritance tax would be due at all — illustrating why using a transferable allowance correctly is one of the single biggest levers in UK estate planning.

Business Relief and Agricultural Relief: Reducing IHT on Business Assets

Beyond the nil-rate band and residence nil-rate band, two specific reliefs can remove qualifying assets from an estate's IHT calculation almost entirely. Business Relief (sometimes called Business Property Relief) can give up to 100% relief on qualifying shares in an unlisted trading company, or shares in a trading company listed on the Alternative Investment Market (AIM), provided they've been held for at least two years before death — this is a major planning tool for business owners, though it does not apply to investment businesses (such as a company that mainly holds property to let) or to most shares on the main London Stock Exchange market. Agricultural Relief similarly gives up to 100% relief on the agricultural value of qualifying farmland and farm buildings, again generally subject to a minimum ownership and occupation period. Both reliefs are complex, have been subject to recent government reviews around capping very large claims, and are easy to get wrong without professional advice — assets that look eligible on the surface (a farmhouse that isn't genuinely used for farming, for instance, or a company that holds significant cash reserves beyond working-capital needs) can fail to qualify, so anyone relying on these reliefs for estate planning should get current, case-specific advice rather than assuming eligibility from general rules of thumb.

Trusts and IHT: A Brief Overview

Placing assets into certain types of trust during your lifetime can remove them from your estate for IHT purposes, but the rules are intricate and trust taxation has its own separate charges that can offset the benefit if not planned carefully. A gift into most trusts is treated as a transfer that becomes fully exempt from IHT only if you survive seven years from the date of the gift (the same seven-year rule that applies to outright lifetime gifts), and some trust types face an immediate lifetime charge of 20% on the value transferred if it exceeds the available nil-rate band at the time of the gift. Trusts also face their own periodic and exit charges roughly every ten years, independent of the settlor's eventual death. Because of this complexity, trusts are generally a tool for larger estates or specific family circumstances (protecting assets for young beneficiaries, for example) rather than a simple, universal way to reduce an IHT bill, and anyone considering one should get professional advice specific to their estate rather than relying on general rules of thumb.