IHT Worked Example UK: How Inheritance Tax Is Calculated with Real Numbers (2026)
Four step-by-step worked examples: a single person on £600,000, a married couple on £1.4 million, a charitable estate qualifying for the 36% rate, and a large estate where the RNRB taper applies. All using 2026/27 thresholds.
Worked Examples
Example 1: Single person — estate of £600,000
| Gross estate (house £450,000 + savings £150,000) | £600,000 |
| Deductions (funeral expenses, no debts) | (£5,000) |
| Net chargeable estate | £595,000 |
| Nil Rate Band available | (£325,000) |
| Residence Nil Rate Band (home to child) | (£175,000) |
| Chargeable estate above thresholds | £95,000 |
| IHT at 40% | £38,000 |
The house (£450,000) passes to one adult child under the will — so the RNRB (£175,000) is available. Total thresholds: £500,000. Taxable excess: £95,000. IHT bill: £38,000. The child receives the estate net of IHT. The executor pays IHT before applying for probate — using the Direct Payment Scheme if funds are in a bank account.
Example 2: Married couple — combined estate of £1,400,000
| Husband's estate (all left to wife) | £700,000 |
| IHT on first death | £0 (spousal exemption — s18 IHTA 1984) |
| NRB used on husband's death | £0 (full NRB transferred to wife) |
| Wife's estate on second death | £1,400,000 |
| Wife's own NRB | (£325,000) |
| Transferred NRB (husband's unused NRB) | (£325,000) |
| Wife's RNRB (home to child) | (£175,000) |
| Transferred RNRB (husband's unused RNRB) | (£175,000) |
| Total thresholds on second death | (£1,000,000) |
| Chargeable estate | £400,000 |
| IHT at 40% | £160,000 |
The estate of £1.4m is above the £1m combined threshold. The children receive the estate net of IHT. For the full £1m to be available: (1) neither NRB was used against a CLT or PET in the prior 7 years; (2) the family home passes to children (not a sibling or charity); (3) the estate does not exceed £2m (no RNRB taper). Condition (3) is satisfied here as the estate is £1.4m.
Example 3: Married couple with charitable gift — estate of £1,400,000
| Wife's estate on second death (as above) | £1,400,000 |
| Charitable legacy (to registered charity) | (£90,000) |
| Net estate after charitable deduction | £1,310,000 |
| Total thresholds available (NRBs + RNRBs) | (£1,000,000) |
| Chargeable estate | £310,000 |
| 10% test: is 10% of baseline (£400,000) left to charity? | £40,000 required — £90,000 given ✓ |
| IHT at reduced rate of 36% | £111,600 |
| IHT saving vs 40% rate (Example 2) | £48,400 saving |
The 10% charitable giving threshold triggers the 36% reduced rate under Schedule 1A IHTA 1984. The baseline is the chargeable estate before the charitable deduction: £400,000 (from Example 2). 10% = £40,000. The £90,000 charitable gift exceeds this, so the reduced rate applies. The IHT saving (£48,400) is greater than the extra charitable giving above the minimum (£50,000 above minimum). The family actually benefits from the larger charitable gift as well as the charity.
Example 4: Large single estate — RNRB taper applies
| Net estate (no spouse) | £2,500,000 |
| NRB available | (£325,000) |
| RNRB before taper (home to children) | £175,000 |
| RNRB taper: estate £2.5m — £2m excess = £500,000 ÷ 2 | (£250,000 reduction) |
| RNRB available after taper | £0 (fully withdrawn — excess > £350,000) |
| Chargeable estate | £2,175,000 |
| IHT at 40% | £870,000 |
The RNRB tapers by £1 for every £2 of net estate above £2,000,000. At £2,500,000, the excess is £500,000. The taper reduction is £250,000 — which exceeds the RNRB of £175,000, so the RNRB is completely withdrawn. Only the NRB (£325,000) is available. On a £2.5m estate, IHT is £870,000 — 34.8% of the gross estate. For a surviving spouse who inherits twice the RNRB (£350,000), the taper does not fully withdraw the RNRB until the estate exceeds £2,700,000.
How IHT Is Calculated: The Method
How to calculate IHT: the step-by-step method
Inheritance tax is calculated as follows: (1) Start with the gross estate — all assets at death value (property, savings, investments, business interests, life insurance not in trust, pension funds post-April 2027). (2) Deduct liabilities — outstanding debts, mortgages, funeral expenses, outstanding bills. The result is the net chargeable estate. (3) Deduct the available nil rate band (NRB). In 2026/27 this is £325,000 per person. If unused NRB is transferred from a deceased spouse, the NRB may be up to £650,000. (4) Deduct the available Residence Nil Rate Band (RNRB), if the main home passes to direct descendants and the estate is below £2m (or tapered above £2m). In 2026/27 this is £175,000 per person, up to £350,000 for a surviving spouse. (5) Apply 40% to the chargeable remainder. Or 36% if 10% or more of the net estate (above the NRB) passes to qualifying charities. (6) Apply any reliefs: taper relief on failed PETs; APR/BPR on qualifying property; fall in value relief; quick succession relief. The result is IHT payable.
What counts as part of the estate for IHT?
The IHT estate includes: all property in the UK and overseas (for UK-domiciled individuals); bank accounts and savings; investments, shares, and ISAs (ISAs lose their ISA status on death for IHT purposes); business interests (unless APR/BPR applies); life insurance policies not written in trust; pension funds — currently outside the estate, but proposed to be included from 6 April 2027; assets in a trust where the deceased had a qualifying interest in possession; failed PETs (gifts made in the 7 years before death where the donor did not survive 7 years); assets subject to a gift with reservation (GWR) where the donor retained benefit. Not included: assets written into trust more than 7 years ago (as CLTs, not PETs); assets already exempt (e.g. assets passed to spouse under the spousal exemption).
What can be deducted from the estate?
The following can be deducted from the gross estate to arrive at the net chargeable estate: outstanding mortgages secured on property; other debts owed at death (credit cards, loans, HMRC income tax liabilities); reasonable funeral expenses (cremation/burial, wake, headstone — but not excessive amounts). Not deductible: debts created to reduce IHT without commercial purpose; debts owed to family that are not genuine arms-length obligations; foreign taxes already paid on foreign assets (a credit may apply under a double tax treaty or unilateral relief, but it is not a simple deduction). Liabilities to connected parties may be scrutinised by HMRC.
When must IHT be paid?
IHT is due by the end of the sixth month after the month of death. For a death in June 2026, IHT is due by 31 December 2026. Interest runs from the due date if payment is late. Payment must be made before a grant of probate is issued — which creates a practical problem since the executor cannot access the estate assets without the grant. Solutions: use the Direct Payment Scheme (HMRC requests funds directly from UK banks); pay from existing personal funds and recoup from the estate post-grant; borrow from a bank against the estate. For some illiquid assets (property, unlisted shares, agricultural property), IHT can be paid in annual instalments over 10 years under the instalment option — but interest accrues.
Frequently Asked Questions
How much inheritance tax will I pay on a £600,000 estate?
If the £600,000 estate belongs to a single person who leaves their home (worth at least £175,000) to a direct descendant, the IHT is calculated as: £600,000 minus funeral expenses (say £5,000) = £595,000 net estate. Minus NRB £325,000. Minus RNRB £175,000. Chargeable amount: £95,000. IHT at 40%: £38,000. If the RNRB is not available (no main home left to descendants), the chargeable amount rises to £270,000 and IHT is £108,000.
How much inheritance tax will a married couple pay on a £1.4 million estate?
If everything passed to the surviving spouse first (using the spousal exemption), with no IHT on first death, the second death estate of £1.4m can use four thresholds: two NRBs (£650,000) plus two RNRBs (£350,000) = £1,000,000. Chargeable amount: £400,000. IHT at 40%: £160,000. The children receive £1,240,000 net of IHT.
Does a charitable gift reduce my IHT bill?
Yes, in two ways: (1) The charitable gift is deducted from the estate before IHT is calculated — so less is subject to IHT. (2) If the charitable gift equals at least 10% of the net chargeable estate (the amount above the NRB, before charitable deduction), the IHT rate reduces from 40% to 36% on the whole chargeable estate. The saving is significant — in some cases, increasing a charitable gift to hit the 10% threshold saves more IHT for the family than the extra charity costs.
What is the RNRB taper and when does it apply?
The Residence Nil Rate Band (RNRB) is reduced by £1 for every £2 of net estate above £2,000,000. For a single person using one RNRB (£175,000), the taper removes it entirely at £2,350,000. For a surviving spouse using both RNRBs (£350,000), it is fully removed at £2,700,000. The NRB is not tapered. Large estates above £2m lose the RNRB progressively, effectively increasing their IHT rate as the estate grows.
How does IHT work if someone dies with a mortgage?
The outstanding mortgage is deducted from the value of the property (and therefore the gross estate) before IHT is calculated. Example: property worth £600,000 with a £200,000 mortgage — the net value for IHT is £400,000. Only the equity, not the full value of the property, is included in the estate. Other debts (credit cards, loans) are similarly deductible. Funeral expenses are also deductible.
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