Estimate how much IHT could be due on your estate. Includes nil-rate band, residence nil-rate band, and spouse transfers.
Inheritance tax is charged at 40% on the value of an estate above the nil-rate band when someone passes away. The nil-rate band has been frozen at £325,000 since 2009 and will remain at this level until at least April 2031. With property values rising, more estates are being caught by IHT each year — HMRC forecasts receipts of £8.7 billion in 2025/26.
Every individual has a nil-rate band of £325,000. The portion of your estate below this threshold is tax-free. Anything above it is taxed at 40% (or 36% if you leave at least 10% to charity). Married couples and civil partners can transfer any unused nil-rate band to the surviving partner, potentially giving a combined threshold of £650,000.
If you leave your home to direct descendants (children, stepchildren, grandchildren), you get an additional £175,000 allowance on top of the standard nil-rate band. This gives an individual up to £500,000 tax-free, or a married couple up to £1,000,000 combined. However, the residence nil-rate band is tapered away for estates worth more than £2 million — reduced by £1 for every £2 above that threshold.
Gifts made during your lifetime can reduce your estate for IHT purposes, but only if you survive for at least seven years after making the gift. Gifts made within the seven years before death are added back to the estate value. There's a sliding scale of relief (taper relief) for gifts made between three and seven years before death. Certain gifts are always exempt regardless of timing — including up to £3,000 per year in small gifts, wedding gifts, and gifts out of normal income.
There are several legitimate ways to reduce inheritance tax. Making gifts during your lifetime (and surviving seven years) is the most common approach. Writing a will to ensure you use all available allowances, leaving at least 10% to charity to get the reduced 36% rate, and using trusts for estate planning are all effective strategies. Pensions are currently outside the IHT net, although from April 2027 inherited pension pots will be included in the estate for IHT purposes.