How is inheritance tax calculated?
When you die, inheritance tax can take a significant slice of your estate, but only above certain allowances. Understanding how IHT is calculated and which bands apply to you, is the first step to knowing whether your family could face a tax bill.
Senior Wealth Planning Director
4 Oct 2026
|Calculating inheritance tax with our simple IHT calculator
An inheritance tax (IHT) calculation is essential to know what IHT is payable on your estate after death. How is inheritance tax calculated? To find out, it is a good idea to use our simple IHT calculator to discover how inheritance tax is calculated so that you have some idea of how much tax you will pay. In turn, this can help you decide if you should start some inheritance tax planning in order to manage any potential IHT liability.
If you would rather speak to one of our Wealth Planners to discuss your personal situation and work with them to calculate your potential IHT, request a free, no obligation consultation.
Calculate your potential IHT bill in five minutes
To help you, we have created a simple-to-use IHT calculator. Once you have filled in the steps, you will be able to get an indication of your potential inheritance tax bill.
The rest of this article provides more details on current IHT rates and a couple of simple examples of inheritance tax calculations.
What are the current IHT rates?
IHT is currently charged at a rate of 40% on assets passed to beneficiaries (other than a spouse or civil partner) above the ‘nil rate band’ of £325,000.
A separate allowance, the residence nil-rate band, applies when someone leaves their main residence to their children or grandchildren. This allowance is currently £175,000 per person meaning an individual’s allowances could reach up to £500,000 before their heirs have to pay IHT. The allowance is reduced for estates worth more than £2m and subject to certain conditions.
The nil-rate band and residence nil-rate band are both currently frozen until at least April 2031.
The examples of inheritance tax calculations below are based on these rates.
How do I include the residence nil-rate band in my inheritance tax calculation?
A combination of the ‘standard’ and ‘residence’ nil-rate bands could allow up to £500,000 of your estate to be exempt from IHT and up to £1m for a couple. The residence nil-rate band is gradually reduced for estates worth more than £2m and can be lost entirely for larger estates.
Residence nil-rate band example.
Inheritance tax planning to manage your potential IHT bill
Having completed your own inheritance tax calculation, you may wish to undertake some IHT planning in order to manage how much your beneficiaries might have to pay, especially if your estate is sizeable or complex.
Frequently asked questions about inheritance tax calculations
From April 2027, pensions will form part of an estate for inheritance tax purposes, which could increase the amount potentially subject to IHT and therefore the amount passed to your loved ones. To estimate any possible liability, you'll need to consider the value of your pension alongside your other assets, available allowances and who you plan to leave your estate to.
Your estate typically includes your property, savings, investments and other assets, once any debts and liabilities have been taken into account. From April 2027, this will include pensions. Gifts you have made during your lifetime may also be considered, depending on when they were made and whether any exemptions apply.
The residence nil-rate band is reduced for estates worth more than £2m. For every £2 above the threshold, the allowance falls by £1. This means that larger estates may lose some or all of this additional inheritance tax allowance, so it is important to factor this into any IHT calculation.
The nil rate band does not usually transfer automatically. Any unused allowance can usually be transferred to a surviving spouse or civil partner, but a claim must be made when the second estate is administered. This can help increase the total amount a couple can pass on before inheritance tax becomes due.
