Inheritance Tax Calculator 2026-27

Inheritance Tax (IHT) is charged at 40% on the value of an estate above the nil-rate band of £325,000. An additional residence nil-rate band (RNRB) of £175,000 is available when passing a home to direct descendants (children or grandchildren), giving a potential threshold of £500,000 per person.

Married couples and civil partners can transfer unused nil-rate bands to the surviving partner, potentially giving a combined threshold of £1 million. The rate is reduced to 36% if at least 10% of the net estate is left to qualifying charities.

The RNRB is tapered for estates above £2 million, reducing by £1 for every £2 above this threshold. Gifts made within 7 years of death may also be subject to IHT on a sliding scale (taper relief).

The full picture: NRB + RNRB + spouse transfer. UK IHT is 40% on the estate above the Nil-Rate Band of £325,000 (frozen until April 2030). Plus a Residence Nil-Rate Band of £175,000 if you leave your main home to direct descendants (children, grandchildren). Both bands transfer between spouses, so a married couple can pass £1,000,000 (£325k + £175k × 2) before IHT if planned correctly. Above £2m total estate value, the RNRB tapers by £1 for every £2 over £2m, eliminated at £2.35m.

Lifetime gifts and the 7-year rule. Gifts made more than 7 years before death are entirely outside the estate. Gifts within 7 years are 'Potentially Exempt Transfers' (PETs) — if you die during this period, they count back into the estate, with taper relief reducing the IHT charge on a sliding scale (8% per year from year 3): 100% IHT in years 0-3, 80% in year 4, 60% year 5, 40% year 6, 20% year 7. Annual gift allowance is £3,000 per person (can carry forward one year). Small gifts (£250 per person per year) are exempt. Wedding gifts £5,000 (child), £2,500 (grandchild), £1,000 (other) are exempt.

Business and Agricultural Relief — major IHT shelters. Business Property Relief (BPR) gives 100% IHT exemption on shares in unlisted trading companies (AIM shares often qualify) held for 2+ years, and on sole trader / partnership assets. Agricultural Property Relief (APR) gives 100% on farmland used for agriculture for 2+ years (7 if let). Both reliefs are under reform from April 2026: the first £1m of combined BPR/APR remains 100% relief; above £1m the relief reduces to 50% (effective IHT rate 20%). This affects high-value family farms and businesses.

Pensions and IHT — the 2027 change. Until 5 April 2027, defined contribution pensions sit outside the IHT estate — passed to nominated beneficiaries free of IHT (income tax may apply if you die after 75). From 6 April 2027, most undrawn pensions will be included in the IHT estate. This is one of the largest IHT changes in decades and will affect millions of pensions. Estate planning strategies for those affected include: drawing down pension earlier and gifting, buying annuities, strategic use of trusts.

Trusts, Charity gifts, and other planning. Discretionary trusts cap entry at the NRB (£325k) per 7-year period without triggering immediate 20% tax. Charity gifts are entirely exempt and reduce the IHT rate on the remaining estate from 40% to 36% if 10%+ of the net estate goes to charity. Lifetime insurance written into trust pays out IHT-free and provides liquidity for beneficiaries to pay any IHT bill. Always work with a STEP-qualified solicitor or chartered tax adviser for IHT planning — mistakes are expensive and often irreversible.