Inheritance Tax & Gifts Calculator (UK 7-Year Rule)
Calculate UK Inheritance Tax on an estate and lifetime gifts using the 7-year rule and taper relief. Includes nil-rate band and residence nil-rate band.
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UK Inheritance Tax & Gifts Guide
What do I need to know about The Basics of IHT?
Inheritance Tax (IHT) is charged at 40% on the value of an estate above the tax-free thresholds. Nil-rate band (NRB): £325,000 per person (frozen until 2030). No IHT on the first £325,000. Residence nil-rate band (RNRB): an additional £175,000 when leaving your main home to direct descendants (children, grandchildren, including step and adopted). Combined: an individual can pass on up to £500,000 tax-free (£325,000 + £175,000). Spousal transfer: married couples and civil partners can transfer unused nil-rate band and residence nil-rate band to the surviving partner, potentially giving a combined allowance of up to £1 million tax-free for a couple's estate.
What's the key thing to understand about The 7-Year Rule on Gifts?
Gifts made during your lifetime may be subject to IHT if you die within 7 years. Potentially Exempt Transfers (PETs): most gifts to individuals. If you survive 7 years, they're completely exempt. If you die within 7 years, they count back into your estate. Taper relief: reduces the tax on gifts made 3-7 years before death (NOT the gift value, the tax): 0-3 years before death: 40% (no taper). 3-4 years: 32%. 4-5 years: 24%. 5-6 years: 16%. 6-7 years: 8%. 7+ years: 0% (fully exempt). Important: taper relief only reduces the tax on gifts that exceed the nil-rate band — a gift that falls entirely within the available nil-rate band is not taxed at all, regardless of when it was made.
What should I know about Gift Exemptions?
Some gifts are immediately exempt (no 7-year rule): annual exemption: £3,000 per year. Can carry forward one year's unused (so up to £6,000). Small gifts: up to £250 per person per year (to any number of people). Wedding gifts: £5,000 to a child, £2,500 to a grandchild, £1,000 to anyone else. Gifts to spouse/civil partner: unlimited and exempt. Gifts to charities: exempt. Normal expenditure out of income: regular gifts from surplus income (not capital) that don't affect your standard of living —
What's the key thing to understand about Planning and Reality?
IHT planning strategies (general — get professional advice): use the spouse exemption and transferable allowances. Make use of annual exemptions and gifts from income. Consider PETs early (start the 7-year clock sooner). Leave 10%+ to charity (reduces rate to 36%). Trusts (complex — professional advice essential). Business Relief and Agricultural Relief (qualifying business/farm assets — up to 100% relief, though reforms are reducing this from April 2026). Life insurance written in trust (pays IHT-free and outside the estate, often used specifically to cover an expected IHT bill so beneficiaries aren't forced to sell assets quickly to pay it).