Inheritance Tax Calculator UK 2025

Inheritance Tax is a tax on the estate (property, money, and possessions) of someone who has died. It is charged at 40% on the value above the nil-rate band. The estate is responsible for paying IHT before assets are distributed to beneficiaries.

The nil-rate band is £325,000 per person. This means the first £325,000 of an estate is tax-free. If the deceased was married or in a civil partnership and the first spouse did not use their full allowance, the unused portion transfers to the surviving spouse, potentially giving up to £650,000.

The residence nil-rate band is an additional £175,000 allowance available when you pass your home to direct descendants (children, grandchildren). Combined with the main nil-rate band, this gives up to £500,000 per person or £1,000,000 for a married couple. It tapers for estates above £2,000,000.

Gifts made within 7 years of death are potentially subject to IHT. Gifts in the first 3 years are taxed at 40%. Between 3-7 years, taper relief applies: 3-4 years at 32%, 4-5 years at 24%, 5-6 years at 16%, and 6-7 years at 8%. Gifts made more than 7 years before death are exempt.

BPR provides 50% or 100% relief from IHT on qualifying business assets. A business or interest in a business typically qualifies for 100% relief. Shares in an unlisted company also qualify for 100%. Land, buildings, or machinery used in a business you own qualifies for 50% relief.

APR provides 50% or 100% relief on the agricultural value of qualifying agricultural property. The property must have been occupied for agricultural purposes for at least 2 years before death (if occupied by the owner) or 7 years (if let to a tenant). Relief is at 100% for most owner-occupied farmland.

Yes. Gifts to charity are exempt from IHT. Additionally, if you leave 10% or more of your net estate to charity, the IHT rate on the remaining taxable estate reduces from 40% to 36%. This can sometimes mean leaving more to charity actually reduces the overall tax bill.

Life insurance payouts form part of your estate for IHT purposes unless the policy is written in trust. If written in trust, the payout goes directly to beneficiaries outside the estate and is not subject to IHT. This is one of the most common and effective IHT planning strategies.

IHT is normally due within 6 months of the end of the month of death. For property, you can pay in instalments over 10 years. The personal representatives (executors) are responsible for paying IHT from the estate before distributing assets. HMRC charges interest on late payments.

Transfers between married couples and civil partners are completely exempt from IHT, regardless of the amount. Additionally, any unused nil-rate band from the first spouse can be transferred to the surviving spouse, effectively doubling the available allowance to £650,000 (or £1,000,000 including the residence nil-rate band).