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Reckon your Inheritance tax accurately
Inheritance Tax Calculator
Try out our exclusive Inheritance Tax calculator. Stay ahead of the competition and know the applicable tax on your Inheritance tax.
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How does Inheritance Tax work in the UK?
Inheritance Tax (IHT) is a tax on the value of a person's estate, including property and assets, that are transferred upon death or during their lifetime. The standard IHT rate is 40% on the value above the Nil Rate Band (NRB) for transfers made on death. For gifts made during your lifetime, a 20% rate applies, but if you survive for 7 years after making the gift, it may be exempt from IHT under the Potentially Exempt Transfer (PET) rules. You can easily calculate your IHT liability using our Inheritance Tax calculator.
What is the Nil Rate Band and Residence Nil Rate Band?
The Nil Rate Band (NRB) is the amount of your estate that is exempt from Inheritance Tax, currently £325,000 per individual.
The Residence Nil Rate Band (RNRB) gives an extra £175,000 exemption if you leave your home to direct descendants (children, grandchildren, etc.)
How do Gifts Affect your IHT Bill?
Certain gifts made during your lifetime can reduce the IHT payable on your estate:
- Gifts to a spouse or civil partner are exempt from IHT.
- Gifts to charity are also exempt from IHT, and leaving at least 10% of your estate to charity can reduce the IHT rate to 36%.
- Small gifts up to £250 per person are exempt from IHT, as well as wedding gifts (within specific limits depending on the recipient).
- Potentially Exempt Transfers (PETs): Gifts made to individuals (e.g., family or friends) may be exempt from IHT if you live for 7 years after the gift. If you die within 7 years, the gift may be subject to tax, depending on the value and timing.
It’s crucial to consider both the amount and timing of gifts, as well as any reliefs such as Business Property Relief (BPR) or Agricultural Property Relief (APR) that may apply to the gifted assets.
How Married Couples can Reduce IHT
Married couples and civil partners can pass assets to each other free from Inheritance Tax. Additionally, any unused Nil Rate Band (NRB), Residence Nil Rate Band (RNRB), and other allowances can be transferred to the surviving partner. As a result, a couple can potentially pass up to £1 million tax-free if both the NRB and RNRB apply.
Moreover, assets passed between spouses or civil partners are generally exempt from IHT, which can significantly reduce the amount of IHT payable upon death.
Common IHT Planning Strategies
Several strategies can help reduce your Inheritance Tax (IHT) liability:
- Use of reliefs and exemptions: Take advantage of Business Property Relief (BPR) and Agricultural Property Relief (APR) to reduce the value of qualifying assets for IHT purposes.
- Lifetime gifting: Gifts made during your lifetime can reduce your estate, particularly if they qualify as Potentially Exempt Transfers (PETs), which are exempt from IHT if you live for 7 years after making the gift. Gifts to charity are also exempt, and leaving at least 10% of your estate to charity can reduce the IHT rate to 36%.
- Small and regular gifts: Gifts up to £250 per person are exempt, as well as wedding gifts (within certain limits depending on the recipient).
- Setting up trusts: Placing assets in trusts can remove them from your estate, potentially reducing IHT, but you need to consider the 7-year rule for PETs and other trust tax implications.
- Using life assurance: Life insurance policies written in trust can help cover IHT liabilities and provide liquidity to pay any tax due, protecting other assets.
- Family investment companies: Using tax-efficient structures such as family investment companies can help pass wealth on while maintaining control, though these require careful professional planning.
It’s essential to seek professional advice to make the most of the available reliefs and exemptions and ensure you’re fully compliant with the rules. Link to our IHT Service Page
Penalties for not Filing Inheritance Tax Returns?
Failure to file your IHT Return leads to an initial penalty of £100 and a daily penalty of £60. The total penalty, however, will not be more than the total IHT Liability.
Under-payment of non-payment of IHT leads to a penalty from 15% up to 100% of the underpaid or unpaid IHT.
If you have any questions regarding Inheritance Tax, read our article "Inheritance Tax in UK - A Complete Guide".
FAQs
Business Property Relief (BPR) reduces IHT on certain business assets. From April 2026, AIM shares qualify for only 50% relief, with a £2.5 million cap on the relief per individual.
Agricultural Property Relief (APR) reduces IHT on farmland and agricultural buildings. From April 2026, the £2.5 million cap applies, with 50% relief on amounts above this limit.
The Residence Nil Rate Band (RNRB) provides an extra £175,000 exemption when a home is passed to direct descendants. A couple can pass up to £1 million tax-free if both the NRB and RNRB apply.
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