UK Inheritance Tax Calculator

Inheritance Tax (IHT) is charged at 40% on the value of your estate above the nil-rate band of £325,000. If you leave your main home to your children or grandchildren, you also get a residence nil-rate band of £175,000. This means a single person can pass on up to £500,000 tax-free, and a married couple can pass on up to £1,000,000.

The nil-rate band has been frozen at £325,000 since 2009 and is expected to remain at this level until at least 2030. Because house prices have risen significantly during this period, more estates are now above the IHT threshold than ever before.

Anything you leave to your spouse or civil partner is completely exempt from IHT, regardless of the amount. When the surviving spouse later dies, their estate can use both nil-rate bands, giving a combined threshold of up to £1,000,000 (£650,000 in nil-rate bands plus £350,000 in residence nil-rate bands).

This transferable allowance is one of the most valuable IHT reliefs. Even if the first spouse used some of their nil-rate band (for example, by leaving money to children), the unused percentage transfers to the surviving spouse.

Gifts made more than 7 years before death are completely outside your estate for IHT purposes. Gifts made within 7 years of death may be taxable, but taper relief reduces the rate: full tax in the first 3 years, then reducing to 32%, 24%, 16%, and 8% in subsequent years before becoming fully exempt after 7 years.

You can also give up to £3,000 per year using your annual exemption (and carry forward one unused year), make small gifts of up to £250 per person, and give regular gifts out of surplus income without any time limit. Wedding gifts have higher limits: £5,000 from parents, £2,500 from grandparents.

If you leave at least 10% of your estate to charity, the IHT rate on the rest drops from 40% to 36%. This can create a situation where leaving more to charity actually increases the amount your family receives, because the 4% rate reduction more than offsets the gift.