How UK Inheritance Tax is calculated (2026/27)

The working order is the same as Income Tax in one respect: you do not tax the whole pot at one rate. You take the estate (assets less debts), subtract amounts that are generally exempt — typically gifts to a spouse or civil partner, and gifts to a qualifying charity or community amateur sports club — and what remains is the chargeable estate. Only then do you subtract the available nil-rate band, and the residence nil-rate band if it applies. Whatever is left is usually taxed at 40%.

You may still need to report the estate to HMRC even when the calculator shows £0. Size, unused-band transfers and the mix of assets all affect whether a full account is required. The people who inherit do not normally pay Income Tax on the inheritance itself; they may pay tax later on income the assets produce, or Capital Gains Tax if they sell.

Everyone has a basic nil-rate band of £325,000. The first slice of the chargeable estate up to that line is charged at 0%. Only the part above it is charged at 40%. That is the classic GOV.UK example, and it is the default button on our calculator.

Worked example: a £500,000 estate, no home left to children, nothing to a spouse or charity, no transferred bands. Chargeable estate £500,000. Nil-rate band £325,000. Taxable amount £175,000. Estimated IHT is 40% × £175,000 = £70,000. The effective rate on the whole estate is 14%, not 40%. Crossing the threshold by a pound does not tax the first £325,000.

If you own a home you have lived in, and you leave it — or a share of it — to direct descendants, the estate may also get a residence nil-rate band of up to £175,000. Combined with the basic band that is the “threshold can increase to £500,000” line on GOV.UK. Direct descendants include children, grandchildren, and many adopted, foster and step-children. A niece, nephew or unmarried partner does not qualify for this extra band, even if they inherit the house.

The extra allowance is not a blanket exemption of the house. It is capped at the value of the home (or share) that actually goes to those descendants, after any mortgage. You subtract it from the whole chargeable estate, not only from the bricks and mortar. A buy-to-let you never lived in does not count. If you owned more than one home you lived in, the executor can choose which one to use. Downsizing, selling or giving away a home on or after 8 July 2015 can still support a claim in some cases — that downsizing addition is not in our calculator.

Worked example: a £600,000 estate including a £300,000 home left to children. Basic band £325,000 plus residence band £175,000 (the home is worth more than £175,000, so the cap is the full extra band). Combined allowance £500,000. Taxable £100,000. Estimated IHT £40,000. Same size of house going to a nephew instead would leave the residence band unused and put you back toward the £70,000-style result.

Gifts to a spouse or civil partner are usually exempt, so the first death in a marriage or civil partnership often uses little or none of either band. The unused percentage can transfer to the survivor. Transfer is of a percentage of the band in force at the first death, applied to the band in force at the second — not a leftover cash balance in a drawer. You normally claim within two years of the second death, on the probate / IHT400 paperwork.

GOV.UK’s own illustration: Carole leaves £130,000 to the children and the rest to her husband. That uses 40% of a £325,000 band, so 60% is unused. When he later dies, his basic band becomes £325,000 + 60% × £325,000 = £520,000. Our calculator skips the first-death reconstruction and asks for the unused percentage you already know.

Worked survivor example on the calculator: a £1,000,000 estate, £400,000 home to children, 100% unused basic band and 100% unused residence band transferred. Basic band £650,000. Residence band up to £350,000, capped by the £400,000 home at £350,000. Combined allowance £1,000,000. Estimated IHT £0. That is the well-known “up to £1 million for a couple” position. It needs a qualifying home to descendants, unused bands that actually transfer, and an estate that has not been eaten by the £2 million taper. Unmarried partners cannot transfer bands this way.

The residence nil-rate band is reduced by £1 for every £2 by which the estate exceeds £2 million. The measure is a broad assets-less-liabilities figure — our calculator uses the estate value you type for both the tax and the taper, which is a planning simplification. The basic £325,000 band does not taper on this test.

Worked example: a £2,100,000 estate, £450,000 home to children, no transferred bands. The estate is £100,000 over £2 million, so the residence band falls by £50,000: £175,000 − £50,000 = £125,000. Total allowance £325,000 + £125,000 = £450,000. Taxable £1,650,000. Estimated IHT £660,000. A single person’s £175,000 residence band is gone once the estate reaches £2.35 million. Transferred unused residence band makes the taper climb a higher mountain — and can also disappear.

Leaving everything above the threshold to a spouse or civil partner usually means no Inheritance Tax on that death (there are tests if one of you is not a long-term UK resident). The bill, if any, waits for the second estate. Entering the full estate as a spouse gift in the calculator therefore shows £0 — useful as a first-death check, not as a claim that the family will never pay.

Gifts to a qualifying charity or community amateur sports club are also generally exempt and come off the chargeable estate. If 10% or more of the formal ‘baseline’ amount goes to charity, the rate on some of the rest can fall from 40% to 36%. That 10% test has its own HMRC calculator and components; ours only lets you tick 36% when you already know the estate qualifies. Ticking it on the £500,000 example would show £63,000 instead of £70,000 — the same taxable slice at a lower rate — without proving the 10% test was met.

Gifts you make while you are alive are not in the death-estate calculator, and they are the usual reason a web estimate is too low. If you survive seven years after a straightforward gift to a person, that gift is normally outside Inheritance Tax (trusts are different). Die sooner, and gifts in those seven years can use up the nil-rate band before the death estate sees it. Taper relief can then cut the rate on the gift itself — 40% inside three years, then 32%, 24%, 16%, 8% as the years pass — but only once gifts in those seven years have already used the £325,000 band. Taper does not reduce tax on the estate; it reduces tax on the gift.

Some gifts never enter that seven-year clock: the £3,000 annual exemption (you can carry one unused year forward), £250 small gifts to any number of people you have not used another allowance on, certain wedding gifts, and regular gifts from surplus income. Selling a house to a child for less than it is worth is a gift of the difference. Giving the house away and still living there rent-free is usually a ‘gift with reservation’ — it stays in your estate. None of that is a form field on our tool.

Unused pension funds are, for deaths before 6 April 2027, usually outside this Inheritance Tax estate. From 6 April 2027 most unused pension funds and pension death benefits are brought into the estate. Death-in-service benefits from a registered pension scheme stay out. Our calculator does not add a pension pot. If you are planning years ahead, treat April 2027 as a second model, not as a tweak to today’s £500,000 example.

From 6 April 2026, 100% agricultural and business property relief is limited to a combined £2.5 million allowance (unused amounts can transfer to a spouse or civil partner), with 50% relief above that. Farms and trading businesses therefore need specialist forms, not a slider on a general estimator. Trusts, foreign assets, the move from domicile to long-term UK residence (from 6 April 2025), and the downsizing addition are also out of scope.

A result of £0 is not the same as “no paperwork”. Executors still value the estate, may still file, and should keep records of gifts in the seven years before death. If GOV.UK, an IHT400 or a solicitor disagrees with a web calculator, those documents win.