Your estate, the nil-rate band, spousal transfers, residence relief, and charity donations. See your IHT bill under current 2026/27 rules, including the 7-year taper on lifetime gifts.
Inheritance Tax (IHT) is a 40% tax on the value of your estate above your "nil-rate band" when you die. Most people — and many estates — pay nothing because they stay under the threshold. But above it, HM Revenue & Customs takes 40p from every pound.
The nil-rate band is frozen at £325,000 until 2030. If you own your main residence and leave it to direct descendants (children or grandchildren), you get an extra £175,000 allowance called the Residence Nil-Rate Band. You can also transfer unused allowances from a deceased spouse, potentially doubling your band. Gifts made within seven years of death "pull back" and become liable to tax, though there's a sliding scale of relief.
If you leave 10% or more of your net estate to charity, the rate drops to 36% on everything else — a neat arithmetic sweet spot for generous donors.
Nil-Rate Band (NRB): £325,000 of your estate is free from tax. This is a personal allowance, not transferred to your spouse unless they've outlived you.
Residence Nil-Rate Band (RNRB): An extra £175,000 is available if you leave your main residence to your children, grandchildren, or in some cases step-children. This applies per person and can be transferred if unused by your spouse. Unlike the NRB, it phases out: for every £2 your estate exceeds £2 million, you lose £1 of RNRB. So at £2.35 million, the RNRB is fully gone. If your spouse's allowance transfers, the threshold becomes £2.7 million.
Spousal transfer: If your spouse died first and didn't use their full allowances, you inherit them. This can double your NRB to £650,000 (or £1 million combined if you also have their unused RNRB).
Gifts made during your lifetime (outside of annual exemption) don't immediately trigger IHT. Instead, they're "Potentially Exempt Transfers" (PETs). If you survive 7 years, they're free. If you die within 7 years, they count toward your estate and may be subject to IHT. The tax is tapered based on how long before death you gave them away:
| Years before death | Tax rate on amount above NRB |
|---|---|
| 0–3 years | 40% |
| 3–4 years | 32% |
| 4–5 years | 24% |
| 5–6 years | 16% |
| 6–7 years | 8% |
| 7+ years | 0% |
This calculator models gifts made a certain number of years ago. If you gave away £100,000 five years ago and die today, that £100,000 (if above your NRB) is taxed at 16%, not 40%. It's one reason lifetime gifting is a powerful planning tool.
If you leave at least 10% of your net estate (after debts and costs) to registered UK charities, the IHT rate on the remainder drops from 40% to 36%. For large estates, this 4% saving can exceed the value of the charitable gift itself, making it a mathematically clever planning move. But of course, the charity must actually benefit — you can't simply skip the gift to trigger the rate.
| Item | Amount |
|---|---|
| Estate value | £0 |
| Less: charity gifts (for relief calc) | £0 |
| Net for tax purposes | £0 |
| Less: Nil-Rate Band | £0 |
| Less: Residence Nil-Rate Band (after taper) | £0 |
| Less: Gifts (7-year taper rule) | £0 |
| Taxable amount | £0 |
| Tax at 40% (standard) | £0 |
| Less: 4% charity relief | £0 |
| Total IHT | £0 |
Gifts out of surplus income: Gifts from your regular income (if not affecting your standard of living) are immediately exempt. You can give away thousands per year tax-free if structured correctly.
Life insurance in trust: A life insurance policy can sit outside your estate entirely if written in trust. The proceeds pay your heirs directly, bypassing IHT and often covering the tax bill itself.
Business relief and agricultural relief: If your estate includes qualifying business assets or farmland, you may get 100% or 50% relief. This can remove tens of thousands from the taxable estate.
Pensions outside the estate: Pensions usually fall outside your taxable estate. Using your pension pot for living costs in retirement is one of the best IHT planning tools available.
IHT rules are complex and depend heavily on your circumstances (domicile, trusts, business interests, gifts, marriage status). This tool illustrates the core mechanism but omits many reliefs and exceptions. Please consult a qualified tax or financial adviser before making decisions about large gifts or estate planning. HMRC guidance is at gov.uk/inheritance-tax.
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