Question 1

What is Inheritance Tax and when does it apply?

Accepted Answer

Inheritance Tax is a tax on the estate (property, money and possessions) of someone who has died. It applies at a rate of 40% on the value of the estate above the available thresholds. IHT is paid before the estate is distributed to beneficiaries. It may also apply to gifts made within seven years of death.

Question 2

What are the nil rate band and residence nil rate band?

Accepted Answer

The nil rate band (NRB) is £325,000, the amount of an estate that is exempt from IHT. The residence nil rate band (RNRB) is an additional allowance of up to £175,000, available when a main residence is passed to direct descendants such as children, stepchildren, or grandchildren. This gives a combined threshold of up to £500,000 per person, or up to £1 million for married couples and civil partners who transfer unused allowances.

Question 3

What is the seven-year gifting rule?

Accepted Answer

Gifts made more than seven years before death are generally exempt from IHT. Gifts made in the last seven years may be subject to IHT on a sliding scale known as taper relief: gifts made three to four years before death attract 80% of the full IHT charge, reducing to 40% for gifts six to seven years before death. The full 40% IHT rate applies to gifts made within three years of death.

Question 4

How does the charity exemption reduce IHT?

Accepted Answer

Gifts to UK registered charities are exempt from IHT entirely. Additionally, if you leave at least 10% of your net estate to charity, the IHT rate on the taxable portion is reduced from 40% to 36%. The net estate is calculated as the estate value minus the nil rate band and residence nil rate band. This can make charitable giving more tax-efficient for larger estates.

Question 5

Does IHT apply between spouses or civil partners?

Accepted Answer

Transfers between spouses and civil partners are generally exempt from IHT, regardless of the amount, provided both parties are UK-domiciled. Additionally, any unused nil rate band and residence nil rate band can be transferred to the surviving partner, potentially giving them a combined threshold of up to £1 million. This can significantly reduce or eliminate IHT on the second death.

Question 6

Will pensions be subject to IHT from 2027?

Accepted Answer

The UK government has announced that from April 2027, most unused pension funds will be included in the estate for IHT purposes. Currently, pensions sit outside the estate and can be passed on free of IHT, making them a popular estate planning tool. The proposed change is a significant shift and it is advisable to review your pension and estate plan with a financial adviser before the rules change.

Question 7

How can I reduce my Inheritance Tax bill?

Accepted Answer

Common strategies to reduce IHT include: making use of the annual gift exemption (£3,000 per year), making gifts out of surplus income, using trusts, taking out a whole-of-life insurance policy written in trust to cover the IHT bill, leaving assets to a spouse or civil partner, leaving at least 10% of the net estate to charity to benefit from the 36% rate, and making full use of the residence nil rate band. Always seek advice from a qualified estate planning or financial adviser.

Question 8

How accurate is this calculator?

Accepted Answer

This calculator uses 2025/26 IHT thresholds and rates and provides a reliable estimate for straightforward estates. It does not account for assets held in trust, business property relief, agricultural property relief, foreign assets, or complex lifetime gift calculations. For an accurate IHT assessment and estate planning advice, consult a solicitor or qualified financial adviser.

Inheritance Tax Calculator

Rates & sources2025/26

Full 2025/26 tax summary as a PDF

When to use this calculator

Worked example: £750,000 estate, home left to children

How to read your results

IHT Due

Estate After Tax

Taxable Amount

Threshold Used

Common mistakes

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