Inheritance Tax Calculator UK 2026 — IHT Explained

Inheritance tax (IHT) affects estates above certain thresholds. Understanding the rules helps you plan effectively and potentially reduce the tax burden on your beneficiaries.

Inheritance Tax Overview

Key Figures 2026/27

Element	Amount
Nil-rate band	£325,000
Residence nil-rate band	£175,000
IHT rate	40%
Reduced rate (charity)	36%
Spouse exemption	Unlimited

How IHT Is Calculated

Basic Calculation

Step	Action
1	Calculate total estate value
2	Deduct debts and funeral costs
3	Deduct exempt gifts (spouse, charity)
4	Apply nil-rate band(s)
5	Pay 40% on remainder

Simple Example

Estate Component	Value
Property	£450,000
Savings and investments	£100,000
Personal possessions	£30,000
Total estate	£580,000
Less: Nil-rate band	-£325,000
Taxable estate	£255,000
IHT at 40%	£102,000

Nil-Rate Bands Explained

Basic Nil-Rate Band (NRB)

Feature	Details
Amount	£325,000
Who gets it	Everyone
Transferable?	Yes, to spouse
Frozen until	2028

Residence Nil-Rate Band (RNRB)

Feature	Details
Amount	Up to £175,000
Requirement	Leave home to direct descendants
Direct descendants	Children, grandchildren, step-children
Estate limit	Tapers above £2 million

Combined Thresholds

Situation	Total Threshold
Single person, no home to descendants	£325,000
Single person, home to descendants	£500,000
Married couple, no home to descendants	£650,000
Married couple, home to descendants	£1,000,000

Married Couples & Civil Partners

Spouse Exemption

What It Means	Details
Unlimited transfer	Leave everything to spouse, no IHT
Nil-rate band preserved	Unused NRB transfers to survivor
RNRB also transfers	If conditions met

Example: Using Transferred Bands

First Death
Estate value	£800,000
Left to spouse	£800,000
IHT payable	£0
Unused NRB	£325,000 (100%)

Second Death
Combined estate	£1,200,000
Own NRB	£325,000
Transferred NRB	£325,000
Own RNRB	£175,000
Transferred RNRB	£175,000
Total threshold	£1,000,000
Taxable estate	£200,000
IHT at 40%	£80,000

IHT Quick Calculator

Single Person Estates

Estate Value	No RNRB	With RNRB
£400,000	£30,000	£0
£500,000	£70,000	£0
£600,000	£110,000	£40,000
£750,000	£170,000	£100,000
£1,000,000	£270,000	£200,000

Married Couple Estates (Second Death)

Estate Value	No RNRB	With RNRB
£700,000	£20,000	£0
£1,000,000	£140,000	£0
£1,250,000	£240,000	£100,000
£1,500,000	£340,000	£200,000
£2,000,000	£540,000	£400,000

Exemptions and Reliefs

Main Exemptions

Exemption	Limit	Notes
Spouse/civil partner	Unlimited	Must be UK domiciled
Charity	Unlimited	Reduces rate to 36% if 10%+
Annual exemption	£3,000/year	Can carry forward 1 year
Small gifts	£250/person	Unlimited recipients
Wedding gifts	£1,000-5,000	Depends on relationship
Regular gifts from income	Unlimited	Must be habitual

Business and Agricultural Relief

Relief	Rate	What Qualifies
Business Property Relief	50-100%	Trading business, shares
Agricultural Relief	50-100%	Agricultural property

Gifts and the 7-Year Rule

Potentially Exempt Transfers (PETs)

When Gift Was Made	IHT Rate
Within 3 years	40%
3-4 years	32%
4-5 years	24%
5-6 years	16%
6-7 years	8%
7+ years	0%

Gift Planning Example

Gift	Made	Age at Death	Survives	IHT Rate
£100,000	Age 70	78	8 years	0% (exempt)
£100,000	Age 70	74	4 years	24% = £24,000
£100,000	Age 70	72	2 years	40% = £40,000

Key insight: Give early if you’re going to give.

RNRB Tapering

High-Value Estates

Net Estate	RNRB Available
Up to £2,000,000	Full £175,000
£2,100,000	£125,000
£2,200,000	£75,000
£2,300,000	£25,000
£2,350,000+	£0

RNRB reduces by £1 for every £2 above £2 million.

IHT Planning Strategies

Legitimate Ways to Reduce IHT

Strategy	How It Works	Potential Saving
Gifts in lifetime	7-year rule	Full IHT on gifted amount
Regular gifts from income	Exempt immediately	Depends on surplus income
Use annual exemptions	£3,000 + £3,000 (married)	£2,400 IHT saved/year
Charitable legacies	10%+ to charity	Rate drops to 36%
Life insurance in trust	Payout outside estate	Covers IHT bill
Business investments	BPR qualifying	50-100% relief
Spend it	Reduce estate	100% saving!

Gifting the Annual Exemption

Years of Gifting	Amount (Couple)	IHT Saved
5 years	£30,000	£12,000
10 years	£60,000	£24,000
20 years	£120,000	£48,000

Regular Gifts from Income

If You Can Show	Then
Gifts are regular	Exempt from IHT
From surplus income	Not capital
Maintain living standards	Must be genuine surplus

Example: Higher earner gifting £500/month to children = £6,000/year removed from estate immediately.

Life Insurance for IHT

How It Works

Feature	Details
Take out whole-of-life policy	Covers IHT liability
Write in trust	Keeps payout outside estate
Beneficiaries receive payout	To pay IHT bill
Estate intact	Doesn’t need to be sold

Example

Estate	£1,500,000
IHT liability	£200,000
Life insurance sum	£200,000
Monthly premium	~£150-300
Outcome	Beneficiaries get full estate

Charity Giving and the 36% Rate

How It Works

Scenario	Rate
Leave less than 10% to charity	40%
Leave 10%+ to charity	36%

Example: £800,000 Estate (Single)

Option	To Charity	IHT	To Family
No charity	£0	£190,000 (40%)	£610,000
10% to charity	£47,500	£171,000 (36%)	£581,500
Difference	+£47,500	-£19,000	-£28,500

Family loses £28,500, charity gains £47,500. Cost to family of £47,500 charity gift = £28,500.

Who Pays IHT?

Responsibility

Situation	Who Pays
Death estate	Executors from estate
Gifts within 7 years	Recipient (usually)
Unless giftor pays	Gross up the gift
Trust distributions	Trustees

When IHT Is Due

Type	Due Date
Death estate	6 months after death
Lifetime gifts	6 months after death
Interest charged	On late payment

Key Takeaways

1. £325,000 basic threshold — plus £175,000 if leaving home to descendants
2. Married couples — can pass on combined £1m threshold
3. 7-year rule — gifts become exempt if you survive 7 years
4. Annual exemptions — use £3,000/year consistently
5. Plan early — the earlier you gift, the more effective
6. Get advice — complex estates need professional planning

For related topics, see our estate planning guide and will writing guide.