Inheritance Tax Calculator UK 2026: How to Work Out Your IHT Bill
Updated 15 May 2026 · 8 min read · England & Wales
Inheritance tax (IHT) in England and Wales is charged at 40% on the taxable estate above the available nil-rate band. But “available nil-rate band” depends on who is dying, what reliefs apply, what gifts were made in the last seven years, and whether any of a late spouse's allowance transfers. This guide walks through the calculation step by step, with a worked example.
The Six-Step IHT Calculation
Step 1 — Calculate the gross estate
Add up the open-market value of all assets owned at death.
Step 2 — Deduct liabilities
Subtract mortgages, loans, credit cards, funeral expenses, and other debts.
Step 3 — Apply exemptions and reliefs
Deduct exempt transfers (spouse, charity) and apply BPR/APR to qualifying assets.
Step 4 — Add back failed gifts (PETs within 7 years)
Include the value of gifts to individuals made within 7 years of death.
Step 5 — Establish the available nil-rate band
NRB £325,000 ± transferred NRB from spouse ± NRB used by lifetime gifts. Add RNRB if applicable.
Step 6 — Apply the 40% rate to the excess
IHT = (Taxable estate − Available NRB/RNRB) × 40% (or 36% with 10% charity gift).
Step 1: Gross Estate
The gross estate is the open-market value of all assets owned at death, including:
- Residential and investment property (RICS Red Book valuation or three estate agent letters)
- Bank and savings accounts (balance at date of death)
- Investments (shares at quarter-up price; ISAs at full value — no IHT exemption)
- Life insurance not written in trust (the full sum assured)
- Personal possessions (cars, jewellery, furniture — at realistic second-hand value)
- Business interests (if no BPR claimed)
- Foreign assets (if UK-domiciled)
- Joint assets (the deceased's share only)
Assets that do not form part of the estate: pension funds (though pensions will be included from April 2027), jointly held assets passing by survivorship (JROS — pass outside the estate), and assets in trust where the deceased had no interest in possession.
Step 2: Deduct Liabilities
From the gross estate, deduct:
- Mortgages (outstanding balance at date of death)
- Personal loans and credit card balances
- Funeral expenses (reasonable; HMRC guidance suggests up to £10,000–£12,000 is typically accepted)
- Costs of dealing with the estate (executor's reasonable expenses — not legal fees post-death)
- Tax liabilities outstanding at death (income tax, CGT to date of death)
Result: the net estate.
Step 3: Exemptions and Reliefs
Certain assets are deducted from the net estate before IHT is calculated:
- Spouse/civil partner exemption: Gifts to a surviving UK-domiciled spouse are entirely exempt — deduct their full value
- Charitable legacy: Gifts to qualifying charities are exempt — deduct their full value
- BPR assets: Qualifying business assets reduced by 100% or 50% (see BPR guide)
- APR assets: Qualifying agricultural land reduced by 100% or 50%
Result: the chargeable estate (before lifetime gifts).
Step 4: Add Back Failed PETs
Gifts to individuals (not trusts) made in the seven years before death are “failed PETs” and are added back to the cumulative estate. They are assessed in chronological order, oldest first, against the nil-rate band. The NRB is eroded by gifts before being applied to the death estate.
Exempt gifts (annual exemption £3,000/year, small gifts, wedding gifts, normal expenditure out of income) are excluded from failed PET calculations.
Taper relief reduces the IHT on gifts made 3–7 years before death — but only if the gift exceeds the remaining NRB after earlier gifts have been accounted for.
Step 5: Available Nil-Rate Band
Base NRB: £325,000 (2026/27, frozen until April 2030)
Minus: Any NRB used by chargeable lifetime transfers (gifts into trusts) or failed PETs in the seven years before death.
Plus: Unused NRB transferred from a predeceased spouse or civil partner (as a percentage of their NRB at the time of their death).
Plus RNRB: £175,000 if a qualifying residence passes to direct descendants and the estate is below £2 million (full taper). Transferred RNRB from a predeceased spouse may double this.
Step 6: Calculate the Tax
IHT = (Chargeable estate − Available NRB − Available RNRB) × 40%
Or, if ≥ 10% left to charity:
IHT = (Chargeable estate − Available NRB − Available RNRB) × 36%
Worked Example
Facts: Margaret (widow, no surviving spouse) dies leaving: house £600,000, savings £180,000, ISA £40,000, personal possessions £20,000. Mortgage £0. She made a cash gift of £100,000 to her daughter 4 years before death. Her late husband (predeceased 10 years ago) left his entire estate to Margaret — his NRB was fully unused.
| Gross estate | £840,000 |
| Less: liabilities (none) | £0 |
| Less: exemptions/reliefs (none) | £0 |
| Chargeable death estate | £840,000 |
| Add: failed PET (£100,000 gift, 4 years ago) | £100,000 |
| Total chargeable transfers | £940,000 |
| NRB: £325,000 own + £325,000 transferred = £650,000 | (£650,000) |
| NRB used by lifetime gift (£100,000 PET 4 years ago) | +£100,000 used |
| Available NRB for death estate | (£550,000) |
| RNRB: £175,000 own + £175,000 transferred (estate = £840k < £2m) | (£350,000) |
| Taxable excess | £840,000 − £550,000 − £350,000 = −£60,000 |
| IHT payable | £0 |
In this example, Margaret's estate is well within the combined allowances — £1 million combined NRB and RNRB from both her and her late husband. The £100,000 gift reduces the available NRB against the death estate but does not create IHT because there is still enough combined allowance to shelter the full estate. Taper relief on the gift (4 years, 24% rate) would have applied if IHT were due — but here no IHT is payable at all.
When You Need the IHT400
Most estates are “excepted estates” — below the threshold or qualifying for full exemption — and since January 2022 declare their status within the standard probate application (no IHT400 required). You need a full IHT400 if:
- IHT is actually due (estate exceeds available NRB + RNRB)
- The estate value exceeds £3 million gross (even if no IHT is due)
- The deceased was UK domiciled and left foreign assets over a certain threshold
- Certain trusts or complex reliefs are involved
IHT must be paid within six months of the end of the month of death — interest accrues from that date at 7.75% (April 2025 HMRC rate). Property and certain other assets can be paid in ten annual instalments.
Frequently Asked Questions
What is the IHT rate in the UK?
The standard IHT rate is 40% on the value of the estate above the available nil-rate band (and residence nil-rate band). A reduced rate of 36% applies if at least 10% of the net estate is left to charity. Reliefs such as Business Property Relief and Agricultural Property Relief can reduce the taxable value before the rate is applied.
Do gifts made before death affect the IHT calculation?
Yes. Gifts made within seven years of death are brought back into the estate for IHT purposes as 'failed potentially exempt transfers' (PETs). They are added to the estate value and the nil-rate band is applied to them in chronological order (oldest gift first). Taper relief reduces the IHT on gifts made 3–7 years before death.
Does a spouse's unused nil-rate band transfer automatically?
No — it does not transfer automatically. The executor of the second estate must actively claim the transferred nil-rate band on form IHT402 as part of the IHT400 submission for the second death. The claim must be made within two years of the end of the month in which the second death occurred, though HMRC has discretion to accept late claims.
What is included in the gross estate for IHT?
The gross estate includes all assets owned at death (property, bank accounts, investments, business interests, personal possessions, life insurance not in trust, and foreign assets if the deceased was UK domiciled) plus failed PETs (gifts in the seven years before death). Assets exempt from IHT (gifts to spouse, charity, or with BPR/APR) reduce the taxable estate but are still included in the initial gross figure for calculation purposes.
Who pays the IHT — the beneficiaries or the estate?
IHT is a liability of the estate, not the beneficiaries personally. The executor pays it from estate funds before distributing assets. For property and certain other assets, IHT can be paid in ten annual instalments. If the estate cannot pay IHT without selling assets, the executor can apply to HMRC for a payment arrangement. Beneficiaries do not receive assets until IHT (and other estate debts) are settled.
Do I need to submit an IHT400 for every estate?
No. Most estates are 'excepted estates' — below the threshold or qualifying for full relief — and do not need to complete an IHT400. Since January 2022, excepted estates confirm their status within the standard probate application (PA1P or PA1A). Only taxable estates (where IHT is due) or complex non-excepted estates require a full IHT400 and supporting schedules.
Reduce Your IHT Bill — Start with a Will
The RNRB, transferable NRB, and charitable legacy reduction all require the right will structure to work. Our DIY will kit guides you through writing a will that uses these allowances correctly — without solicitor fees.
Get the WillSafe Kit →Related Articles
- IHT thresholds 2026
- All IHT reliefs and exemptions
- Nil-rate band explained
- Residence nil-rate band
- Seven-year rule and taper relief
- Valuing an estate for probate
- How to reduce your IHT bill
This article is for general information only and does not constitute tax advice. IHT calculations are complex — always confirm with a qualified tax adviser or HMRC for estates where IHT may be due.