Inheritance Tax Calculator UK 2025 — Estimate Your IHT Liability
Inheritance tax (IHT) is charged at 40% on the value of an estate above the nil-rate band. Most estates pay no IHT at all — only around 4% of estates are liable. Use our free calculator to estimate the IHT on an estate using current 2025 thresholds, and read our guide to legal ways to reduce the bill.
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Inheritance Tax (IHT) Calculator — 2025 Thresholds
Standard nil-rate band £325,000. Residence nil-rate band £175,000. Rate: 40%.
Estimated inheritance tax liability
Total nil-rate band
Taxable estate above threshold
IHT rate applied
IHT at 40% above the nil-rate band. A reduced rate of 36% applies if 10%+ of the net estate is left to charity. Gifts and trusts may reduce the taxable estate. IHT must be paid within 6 months of death.
Inheritance Tax Explained Simply
Inheritance tax (IHT) is a tax on the estate of someone who has died. It is administered by HMRC and is paid by the executors of the estate before assets are distributed to beneficiaries. The key points are:
- IHT is charged at 40% on the value of the estate above the nil-rate band
- Approximately only 4% of estates actually pay IHT — the nil-rate band and exemptions protect most estates
- IHT must be paid within 6 months of death — interest is charged on late payments
- There is a reduced rate of 36% if 10% or more of the net estate is left to qualifying charities
Current IHT Thresholds (2025)
| Allowance | Amount | Conditions |
|---|---|---|
| Standard nil-rate band (NRB) | £325,000 | Available to everyone |
| Residence nil-rate band (RNRB) | £175,000 | Main home left to direct descendants only |
| Married couple — combined NRB | £650,000 | Unused NRB of first spouse transferred to survivor |
| Married couple — combined RNRB | £350,000 | Both RNRBs if home passes to direct descendants |
| Married couple — maximum threshold | £1,000,000 | If both NRBs and both RNRBs available |
The Gifts and 7-Year Rule
Gifts made more than 7 years before death are generally exempt from IHT — these are called Potentially Exempt Transfers (PETs). Gifts within 7 years are subject to taper relief:
| Years Before Death | IHT Rate on Gift |
|---|---|
| 0–3 years | 40% (full rate) |
| 3–4 years | 32% |
| 4–5 years | 24% |
| 5–6 years | 16% |
| 6–7 years | 8% |
| 7+ years | 0% (exempt) |
Legal Ways to Reduce Inheritance Tax
- Annual gift exemption: Give away up to £3,000 per year (and carry forward one unused year = up to £6,000)
- Small gifts exemption: Up to £250 per person per year to any number of individuals
- Marriage gifts: Up to £5,000 to a child, £2,500 to a grandchild, £1,000 to anyone else
- Gifts from surplus income: Regular gifts from income (not capital) can be immediately exempt if they form part of your normal expenditure
- Spouse/civil partner exemption: All transfers between spouses and civil partners are always IHT-exempt
- Charitable giving: Gifts to charity are exempt. Giving 10%+ of your estate to charity reduces the IHT rate to 36%
- Business Property Relief (BPR): 100% or 50% relief on qualifying business assets and AIM shares
- Agricultural Property Relief (APR): Relief on qualifying agricultural land and farmhouses
- Trusts: Placing assets in trust removes them from your estate (seek specialist advice)
Seek advice early: IHT planning is most effective when done years in advance. Speak to a qualified financial adviser or solicitor specialising in estate planning. The 7-year clock on gifts only starts ticking once the gift is made.
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Frequently Asked Questions
What is the inheritance tax threshold in the UK?
The standard nil-rate band is £325,000. If you leave your home to direct descendants, an additional £175,000 residence nil-rate band applies. Married couples can combine allowances up to £1,000,000 total.
Who pays inheritance tax?
IHT is paid by the estate of the deceased — not directly by the beneficiaries. The executors of the will pay HMRC within 6 months of death before distributing the estate.
Are there ways to legally reduce inheritance tax?
Yes. Common strategies include annual gifts (£3,000/year), leaving assets to a spouse (exempt), donating to charity, using business property relief, and placing assets in trust.
Do I have to pay IHT on gifts?
Gifts made more than 7 years before death are generally exempt. Gifts within 7 years are subject to taper relief — reducing from 40% to 8% for gifts made 6–7 years before death.
When does inheritance tax have to be paid?
Within 6 months of death. HMRC charges daily interest on unpaid IHT. Property assets can be paid in 10 annual instalments.