Inheritance Tax Calculator UK 2026: What Will Your Family Pay?
Your parents own a £500,000 house and have £100,000 in savings.
When they pass away, how much will HMRC take before you see a penny?
If your parent is single and not leaving their home to children, the answer is £110,000 in inheritance tax — that's enough to buy a car, renovate a home, or pay off a significant chunk of mortgage.
Yet most families don't plan for IHT until it's too late. In 2023/24, HMRC collected £7.5 billion in inheritance tax — a record high — and with property prices rising and the nil-rate band frozen since 2009, more families than ever are being pulled into the IHT net.
In this guide, I'll explain exactly how UK inheritance tax works in 2026, show you real calculations for estates from £500k to £2 million, and reveal 7 legal ways to reduce your family's IHT bill.
What Is Inheritance Tax?
Inheritance tax (IHT) is a tax on the estate (property, money, and possessions) of someone who has died. It's charged at 40% on the value above the tax-free threshold.
Here's what makes IHT different from other taxes:
- It's paid by the estate, not the beneficiaries receiving money
- It must be paid within 6 months of death (before probate is usually granted)
- The executor (person administering the will) is responsible for paying it
- Only estates above the threshold pay IHT — approximately 4% of UK deaths result in an IHT charge
💡 The Basic Formula
IHT = (Estate Value − Nil-Rate Band − Exemptions) × 40%
For a £600,000 estate with a single person and no exemptions:
(£600,000 − £325,000) × 40% = £110,000 IHT
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See exactly what your family will pay — includes all exemptions and reliefs
Try Free Calculator →IHT Thresholds and Rates for 2025/26
The UK has two main inheritance tax allowances. Understanding both is crucial because they can combine to protect up to £1 million for married couples.
| Allowance | Single | Married / Widowed | Condition |
|---|---|---|---|
| Nil-Rate Band (NRB) | £325,000 | £650,000 | Available to everyone |
| Residence Nil-Rate Band (RNRB) | £175,000 | £350,000 | Home passed to children/grandchildren |
| Combined Maximum | £500,000 | £1,000,000 | NRB + RNRB combined |
Both allowances have been frozen until at least 2028. With rising property prices, this "stealth tax" pulls more estates into the IHT net each year.
The Nil-Rate Band (NRB) — £325,000
The first £325,000 of every estate is completely tax-free. This threshold has been frozen at this level since 2009 — that's 17 years without increase.
For married couples and civil partners, the unused NRB of the first to die transfers to the surviving partner. This means a widowed person potentially has a £650,000 NRB.
The Residence Nil-Rate Band (RNRB) — £175,000
An additional £175,000 allowance introduced in 2017, available when you leave your main home to direct descendants (children, stepchildren, adopted children, grandchildren, or their spouses).
Key conditions:
- Must be your main residence (not a buy-to-let)
- Must pass to direct descendants (not siblings, nieces, or friends)
- Tapers away for estates over £2 million (reduced by £1 for every £2 above)
- Also transferable between spouses (up to £350,000 combined)
⚠️ RNRB Taper Warning
If your estate is worth £2.35 million or more, the RNRB is reduced to zero. At £2.7 million (widowed), the combined RNRB is completely gone. Estate planning is critical at these levels.
The Spouse Exemption: Why Married Couples Have a Huge Advantage
This is the single most powerful IHT exemption: everything left to a spouse or civil partner is completely exempt from inheritance tax, regardless of amount.
This means:
- A £5 million estate left entirely to a spouse = £0 IHT
- The deceased's unused NRB (£325,000) transfers to the surviving partner
- The deceased's unused RNRB (£175,000) also transfers
- When the surviving spouse dies, they have up to £1 million in combined allowances
The critical planning point: IHT hits on the second death. Most estate planning for married couples focuses on what happens when the surviving partner dies.
Real Examples: Inheritance Tax Calculations (2026)
Scenario 1: Single Parent — £500,000 Estate
Savings: £100,000
Investments: £50,000
Total Estate: £500,000
Status: Single, home to children
Scenario 2: Widowed Person — £800,000 Estate
Savings: £200,000
Investments: £100,000
Total Estate: £800,000
Status: Widowed, home to children
Scenario 3: Single Person — £750,000 Estate (No Children)
Savings: £200,000
Other: £100,000
Total Estate: £750,000
Status: Single, no children (no RNRB)
Scenario 4: Wealthy Couple — £1.5M Estate (Second Death)
Savings: £300,000
Investments: £350,000
Other: £100,000
Total Estate: £1,500,000
Status: Widowed, home to children
Calculate Your Own Scenario
Model property, savings, investments, marital status and gifts
Use IHT Calculator →The 7-Year Gift Rule Explained
One of the most important IHT planning tools is the 7-year rule. Gifts made during your lifetime become completely tax-free if you survive for 7 years after making them.
Here's how it works:
| Years Before Death | Tax Rate on Gift | Taper Relief |
|---|---|---|
| 0 – 3 years | 40% | No relief |
| 3 – 4 years | 32% | 20% relief |
| 4 – 5 years | 24% | 40% relief |
| 5 – 6 years | 16% | 60% relief |
| 6 – 7 years | 8% | 80% relief |
| 7+ years | 0% | Fully exempt |
Important: Taper relief only applies to gifts above the nil-rate band. Gifts within the NRB are already tax-free.
Tax-Free Gifts You Can Make Now
Several gifts are immediately exempt from IHT — no 7-year wait required:
- £3,000 annual exemption — Can carry forward one unused year (max £6,000)
- £250 small gifts — To any number of different people per year
- Wedding/civil partnership gifts — £5,000 (parents), £2,500 (grandparents), £1,000 (others)
- Normal expenditure from income — Regular gifts from surplus income (not capital) are exempt with no limit
- Gifts between spouses — Unlimited, completely exempt
- Gifts to charities — Unlimited, completely exempt
- Maintenance payments — For spouse, children under 18, or dependants
💡 The "Normal Expenditure from Income" Exemption
This is the most underused IHT exemption. If you have surplus income after living expenses, you can make regular gifts with no limit — completely IHT-free. Example: paying grandchildren's school fees, regular savings into a trust, or monthly gifts to family.
The key requirements: gifts must be regular, come from income (not capital), and not affect your standard of living.
7 Legal Ways to Reduce Your Inheritance Tax Bill
Use Your Annual Gift Exemptions
How it works: Give away £3,000 per year (£6,000 if carrying forward). A couple can give away £12,000 in the first year.
Potential saving: Over 10 years, a couple could remove £66,000 from their estate = £26,400 less IHT.
Action: Start gifting now. Set up standing orders to family members. Keep records.
Make Gifts from Surplus Income
How it works: Regular gifts from income (not capital) are immediately exempt. No £3,000 limit and no 7-year wait.
Potential saving: If you gift £1,000/month from pension income = £120,000 over 10 years = £48,000 less IHT.
Action: Keep detailed records of income, expenses, and gifts. HMRC form IHT403 documents this.
Leave Your Home to Children (RNRB)
How it works: Passing your main residence to direct descendants qualifies for an extra £175,000 allowance (£350,000 for couples).
Potential saving: For a couple, £350,000 RNRB = up to £140,000 less IHT.
Action: Ensure your will leaves your home to children/grandchildren, not to siblings or friends.
Donate 10% to Charity (36% Rate)
How it works: Leaving 10%+ of your "baseline" net estate to charity reduces the IHT rate from 40% to 36%.
Potential saving: On a £1M taxable estate, the rate drop saves £20,000, while giving charity £65,000.
Action: Include charitable gifts in your will. Discuss with your solicitor to optimise the 10% threshold.
Write Life Insurance into Trust
How it works: A life insurance policy written in trust pays out directly to beneficiaries outside your estate.
Potential saving: A £200,000 policy in trust removes £200,000 from your estate = £80,000 less IHT.
Action: Check if your existing policy is in trust. If not, ask your provider — it's usually free to set up. New policies should always be written in trust.
Use Business Property Relief (BPR)
How it works: Qualifying business assets get 50% or 100% IHT relief. Includes AIM-listed shares (100%), unquoted shares, and business interests.
Potential saving: £200,000 in AIM shares with 100% BPR = £80,000 less IHT.
Action: Consider AIM ISA investments for IHT planning. Must be held 2+ years. Seek specialist advice.
Spend Your Pension Last
How it works: Most defined contribution pensions are outside your estate for IHT. Spend other assets first and leave pension pots to beneficiaries.
Potential saving: Leaving a £300,000 pension pot instead of cash saves £120,000 IHT.
Action: Draw from ISAs and savings before pensions. Maximise pension contributions. Name beneficiaries on your pension.
Inheritance Tax for Married Couples: A Strategy Guide
Married couples have the most powerful IHT planning opportunities. Here's the typical strategy:
On First Death
- Leave everything to the surviving spouse — £0 IHT
- The deceased's unused NRB (£325,000) transfers automatically
- The deceased's unused RNRB (£175,000) also transfers
- No paperwork needed for NRB transfer (claimed on second death)
Planning for Second Death
- The surviving partner now has up to £1,000,000 in combined allowances
- Start gifting surplus income to reduce the estate
- Consider downsizing if estate exceeds £2 million (RNRB taper)
- Write life insurance into trust to cover any expected IHT bill
- Review the will to ensure RNRB qualification
| Scenario (Married, £1.2M Estate) | No Planning | With Planning |
|---|---|---|
| Estate at second death | £1,200,000 | £1,200,000 |
| Combined NRB | −£650,000 | −£650,000 |
| RNRB (home to children) | £0 (not in will) | −£350,000 |
| Taxable amount | £550,000 | £200,000 |
| IHT bill | £220,000 | £80,000 |
| Saving from planning | — | £140,000 |
Common IHT Mistakes That Cost Families Thousands
Not Writing a Will
The mistake: Dying intestate means assets follow rigid rules — potentially missing RNRB qualification if the home doesn't pass directly to children through a will.
The cost: Could lose £175,000 RNRB = up to £70,000 extra IHT.
The fix: Get a will drafted by a solicitor. Review it every 3-5 years or after major life events.
Life Insurance Not in Trust
The mistake: A life insurance payout goes into your estate and gets taxed at 40%.
The cost: £200,000 policy = £80,000 lost to IHT needlessly.
The fix: Contact your insurer and request a trust form. It's usually free and takes 10 minutes.
Not Keeping Gift Records
The mistake: Making gifts but not documenting them for the executors.
The cost: Executors can't prove exemptions, so HMRC may tax gifts that should have been exempt.
The fix: Keep a gift register: date, recipient, amount, and which exemption applies. Tell your executors where to find it.
Gifting Your Home but Still Living in It
The mistake: Giving your house to children but continuing to live there rent-free.
The cost: HMRC treats this as a "gift with reservation of benefit" — the house stays in your estate for IHT.
The fix: If you gift your home, you must either move out or pay full market rent. Seek specialist advice before gifting property.
Frequently Asked Questions
Inheritance tax is charged at 40% on the value of your estate above the nil-rate band (£325,000). With the residence nil-rate band for a home passed to children, the threshold rises to £500,000 for singles and £1,000,000 for married couples. The rate drops to 36% if you leave 10%+ of your net estate to charity.
The nil-rate band (NRB) is £325,000 for the 2025/26 tax year. This is the amount you can pass on tax-free. Married couples and civil partners can transfer unused NRB, potentially giving a combined £650,000 threshold. It has been frozen at this level since 2009.
No. Transfers between spouses and civil partners are completely exempt from inheritance tax, regardless of amount. The deceased's unused nil-rate band and residence nil-rate band also transfer to the surviving partner for use when they eventually die.
Gifts made more than 7 years before death are completely free of inheritance tax. Gifts made within 7 years are "Potentially Exempt Transfers" (PETs) and may be taxed if the total exceeds the nil-rate band. Taper relief reduces the tax on gifts made 3-7 years before death.
The Residence Nil-Rate Band (RNRB) is an additional £175,000 IHT allowance available when you pass your main home to direct descendants (children, stepchildren, grandchildren). It tapers for estates over £2 million and can be transferred between spouses, giving up to £350,000 combined.
IHT must be paid within 6 months of death. After that, HMRC charges interest. IHT on property and certain assets can be paid in 10 annual instalments. Executors typically need to pay at least some IHT before probate is granted, which creates a cashflow challenge for many estates.
Life insurance payouts are included in your estate for IHT purposes unless the policy is written into trust. A life insurance policy in trust pays out directly to beneficiaries without adding to your estate. This is one of the simplest and most effective IHT planning tools — setting up a trust is usually free via your insurer.
Most defined contribution pensions are outside your estate for IHT purposes. If you die before 75, beneficiaries typically receive pension funds tax-free. After 75, they pay income tax at their marginal rate but no IHT. This makes pensions excellent IHT planning tools — spend other assets first.
Seven legal ways: (1) use annual gift exemptions (£3,000/year), (2) make regular gifts from surplus income, (3) leave your home to children for the RNRB, (4) donate 10%+ to charity for the 36% rate, (5) write life insurance into trust, (6) invest in BPR-qualifying assets, and (7) spend pensions last.
If the estate doesn't have enough liquid cash, executors can: pay IHT on property in 10 annual instalments, take out a loan secured against estate assets, apply to HMRC for extra time, or sell assets to raise funds. Some banks offer "executor loans" specifically for this purpose.
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