How Inheritance Tax Works

IHT is charged at 40% on the value of your estate above the tax-free threshold. Everyone gets a nil-rate band of £325,000 — estates below this value pay no IHT.

Residence Nil-Rate Band

If you leave your home to direct descendants (children or grandchildren), you get an additional £175,000 residence nil-rate band. Combined with the standard nil-rate band, this means up to £500,000 can be passed on tax-free.

For married couples, any unused allowance transfers to the surviving spouse, potentially giving a combined threshold of £1,000,000.

Reducing Your IHT Bill

Common strategies include making gifts (which fall out of your estate after 7 years), leaving 10%+ to charity (which reduces the IHT rate to 36%), pension planning, and using trusts. Professional advice is recommended for estate planning.

What This Calculator Does

This calculator estimates the Inheritance Tax due on an estate for 2025/26, applying the nil-rate band, residence nil-rate band, and any applicable exemptions. It is designed for anyone planning their estate or expecting to receive an inheritance.

How the Calculation Works

IHT is charged at 40% on the estate value above the nil-rate band (£325,000). The residence nil-rate band adds up to £175,000 if a home is passed to direct descendants. Married couples can transfer unused allowances.

Common Scenarios

An estate worth £500,000 including a family home left to children would typically pay zero IHT (covered by the combined £500,000 threshold). An estate worth £1 million left to children would face approximately £200,000 in IHT.

Related Calculators

You might also find these useful: Capital Gains Tax, Pension, Stamp Duty. Or use our main salary calculator for a complete take-home pay breakdown.