Inheritance Tax Calculator 2026

How Inheritance Tax Works in the UK

Inheritance tax (IHT) is a tax on the estate — the property, money, and possessions — of someone who has died. It is charged at 40% on the value of the estate above a threshold, known as the nil-rate band. Below that threshold, no inheritance tax is due.

For most estates, inheritance tax is paid before the assets can be distributed to beneficiaries. The executor is responsible for calculating the liability, completing the relevant HMRC forms, and arranging payment — usually from the estate's own funds.

The Nil-Rate Band: £325,000

The nil-rate band (NRB) is the basic threshold below which no inheritance tax applies. It has been fixed at £325,000 since 2009 and is frozen until at least April 2030.

If the estate is worth less than £325,000 — after deducting any debts, funeral costs, and exempt transfers — no IHT is due and HMRC does not normally need to be notified.

The Residence Nil-Rate Band: £175,000

The residence nil-rate band (RNRB) is an additional allowance of £175,000 that applies when the deceased's main residence is left to direct descendants — children, grandchildren, stepchildren, or adopted children.

Combined with the standard nil-rate band, a single person leaving their home to children has a total threshold of £500,000 before any inheritance tax is due.

The residence nil-rate band begins to taper for estates worth more than £2,000,000 — reducing by £1 for every £2 above that level. At £2,350,000 (for a single person), the RNRB is eliminated entirely.

The Transferable Threshold for Surviving Spouses

Assets passed between spouses or civil partners are entirely exempt from inheritance tax. Additionally, any unused nil-rate band from the first death can be transferred to the surviving spouse.

This means a couple can potentially combine their allowances on the second death:

To claim the transferred nil-rate band, the executor must submit form IHT402 to HMRC as part of the estate administration.

What Counts as the Estate?

The estate includes everything the deceased owned at the date of death:

• Property (at market value, less any mortgage)
• Savings and bank accounts
• Investments, ISAs, and shares
• Business interests (unless Business Property Relief applies)
• Personal possessions, vehicles, jewellery
• Life insurance policies paid into the estate (not into trust)
• Certain gifts made in the 7 years before death

Debts owed by the deceased — mortgages, credit cards, loans, and outstanding bills — are deducted before IHT is calculated. Reasonable funeral costs can also be deducted.

Exemptions and Reliefs

Several significant exemptions can reduce or eliminate the IHT liability:

• Spousal exemption: Transfers between spouses and civil partners are fully exempt.
• Charitable donations: Gifts to qualifying charities are exempt. Leaving 10% or more of the net estate to charity also reduces the IHT rate from 40% to 36%.
• Business Property Relief (BPR): Qualifying business assets — sole trader businesses, shares in unlisted companies — are typically exempt at 100% or 50%.
• Agricultural Property Relief (APR): Agricultural land and farmhouses can qualify for 100% relief.
• Annual gift exemption: Gifts of up to £3,000 per year are exempt, regardless of when they were made.

Does an Estate Have to Go Through Probate?

Inheritance tax and probate are separate but related processes. Even if no IHT is due, probate may still be required to administer the estate. Probate gives the executor legal authority to deal with the deceased's assets — sell property, access bank accounts, and distribute the estate.

If IHT is owed, HMRC requires payment (or an arrangement to pay) before the Probate Registry will issue the Grant of Probate. This can create a timing challenge, since the estate's assets are often needed to pay the tax. Banks and NS&I can sometimes release funds directly to HMRC under the Direct Payment Scheme.