What is the UK Inheritance Tax?
Inheritance Tax is charged at 40% on the value of an estate above the allowances. The nil-rate band is £325,000, plus a residence nil-rate band of up to £175,000 when a main home passes to direct descendants.
A surviving spouse inherits any unused bands, so a couple can potentially pass on £1 million tax-free. The residence band tapers away above a £2 million estate.
Formula & worked example
Residence band tapers by £1 for every £2 of estate above £2m
IHT = (Estate − charity − allowances) × 40% (36% if 10%+ to charity)
Worked example: a £950,000 estate including a £500,000 home passing to children, with no transferred allowance. Allowances are £325,000 + £175,000 = £500,000, leaving £450,000 taxable at 40% = £180,000 of IHT. With a full spousal transfer, allowances would double to £1m and the tax would be nil.
How to use this uk inheritance tax calculator
- Enter the total estate including property, savings, investments and possessions.
- Enter the main residence value separately for the residence band.
- Indicate whether the home passes to direct descendants — required for the residence band.
- A surviving spouse can usually claim the deceased partner's unused bands.
Smart tips
- Leaving 10% or more of the net estate to charity cuts the IHT rate from 40% to 36% on the rest.
- Gifts made more than seven years before death normally fall outside the estate entirely.
- You can give away £3,000 a year free of IHT, plus unlimited small gifts of £250 per person.
- Everything passing to a spouse or civil partner is exempt, and their unused bands transfer to you.
- Pensions have historically sat outside the estate — rules are changing from 2027, so review your plan.
Frequently asked questions
What is the inheritance tax threshold?
£325,000 nil-rate band, plus up to £175,000 residence nil-rate band when a home passes to direct descendants. A couple can pass on up to £1 million.
What is the inheritance tax rate?
40% on the value above the allowances, reduced to 36% if at least 10% of the net estate goes to charity.
How can I reduce inheritance tax?
Gift more than seven years before death, use annual exemptions, leave assets to a spouse, or give 10%+ to charity to cut the rate.
Does the residence band always apply?
Only when a main residence passes to children, grandchildren or other direct descendants, and it tapers away above a £2 million estate.
Want the theory behind the numbers? Read our UK tax guides on the Money Blog.