Inheritance tax is calculated at 40% on the value of an estate above its available tax-free thresholds. You total everything the person owned, subtract debts and exempt gifts, take off the nil-rate band of £325,000 and any residence nil-rate band of up to £175,000, and 40% is charged on what is left (gov.uk, as at August 2026, subject to change).
Most estates pay no inheritance tax at all, because their value falls within the thresholds. The sections below break the calculation into clear steps, show a worked example, and explain how lifetime gifts, the 7-year rule and reliefs change the figure. For the wider picture of allowances and planning, see our inheritance tax guide. This is general information for England and Wales, not advice on a particular estate, and all figures are current as at August 2026 and subject to change.
The formula: how the calculation works step by step
The starting point is the value of the estate on the date of death, which means property, money, investments, vehicles, possessions and certain gifts made in the previous seven years, less any debts and funeral costs (gov.uk, valuing the estate, as at August 2026, subject to change). The calculation then runs like this.
- Add up the assets. Property, savings, investments, life policies not written in trust, business and personal possessions, at their open-market value on the date of death.
- Take off debts and funeral costs. Mortgages, loans, outstanding bills and reasonable funeral expenses reduce the total. The result is the net estate.
- Deduct exempt transfers. Anything passing to a spouse or civil partner, or to a qualifying charity, is generally exempt and comes out before tax is worked out (gov.uk, exemptions, as at August 2026, subject to change).
- Apply the tax-free thresholds. Deduct the nil-rate band of £325,000 and, where a home passes to children or grandchildren, the residence nil-rate band of up to £175,000 (gov.uk, as at August 2026, subject to change).
- Charge 40% on the remainder. Whatever is left above the thresholds is taxed at 40%, or at 36% if at least 10% of the net estate is left to charity.
Gifts made in the seven years before death are added back before the thresholds are applied, which can change the outcome. That part of the calculation is covered under gifts and taper relief below.
The tax-free thresholds
Two allowances do most of the work in reducing an inheritance tax bill. The nil-rate band applies to every estate. The residence nil-rate band is an extra amount that applies where a main home passes to direct descendants, such as children, stepchildren or grandchildren.
| Allowance or rate | Level (August 2026) | Applies to |
|---|---|---|
| Nil-rate band (NRB) | £325,000 | Every estate |
| Residence nil-rate band (RNRB) | Up to £175,000 | A home left to direct descendants |
| Standard rate | 40% | Value above the thresholds |
| Reduced rate | 36% | Where 10%+ of the net estate goes to charity |
| RNRB taper threshold | £2,000,000 | Estates above this level |
Source: gov.uk/inheritance-tax and gov.uk, passing on your home, as at August 2026, subject to change.
The residence nil-rate band is reduced by £1 for every £2 by which the estate is worth more than £2,000,000, so larger estates may keep little or none of it (gov.uk, as at August 2026, subject to change). Married couples and civil partners can pass assets to each other free of inheritance tax, and any unused nil-rate band and residence nil-rate band can transfer to the survivor. That is how a couple can potentially combine allowances up to £1,000,000 where a home passes to children, while a single person leaving a home to direct descendants may reach up to £500,000 (gov.uk, as at August 2026, subject to change).
Gifts, the 7-year rule and taper relief
Gifts can affect the calculation. Most gifts to individuals are potentially exempt transfers, which means they fall outside the estate if the person survives seven years. If death occurs within seven years, the gift is added back into the calculation and can use up part of the nil-rate band (gov.uk, as at August 2026, subject to change). Some gifts are exempt whenever they are made:
- An annual exemption of £3,000 each tax year, with one year's unused allowance able to be carried forward.
- Small gifts of up to £250 per person each tax year.
- Wedding or civil partnership gifts of up to £5,000 from a parent, £2,500 from a grandparent, or £1,000 from anyone else.
- Regular gifts out of surplus income that do not affect the giver's standard of living.
Source: gov.uk/inheritance-tax/gifts, as at August 2026, subject to change.
Where gifts within seven years exceed the nil-rate band, taper relief can reduce the tax due on the gift. Taper relief reduces the tax on the gift, not the value of the gift itself, and it only applies once the gifts go over the nil-rate band.
| Years between gift and death | Tax charged on the gift |
|---|---|
| 3 years or less | 40% |
| 3 to 4 years | 32% |
| 4 to 5 years | 24% |
| 5 to 6 years | 16% |
| 6 to 7 years | 8% |
| 7 or more years | 0% |
Source: gov.uk, gifts and taper relief, as at August 2026, subject to change.
Reliefs and exemptions that reduce the bill
Beyond the thresholds and gift exemptions, some reliefs can take assets out of the calculation or reduce their taxable value. The spouse or civil partner exemption removes transfers between them from the sum. The charity exemption removes qualifying gifts to charity, and leaving 10% or more of the net estate to charity brings the rate on the rest down to 36% (gov.uk, as at August 2026, subject to change). For business and farming assets, agricultural property relief and business property relief give 100% relief on the first £2,500,000 of combined qualifying property per person, and 50% above that, from 6 April 2026. That £2,500,000 allowance can be transferred between spouses and civil partners, up to £5,000,000 per couple (gov.uk, 23 December 2025, subject to change). Whether any relief applies depends on the assets and the conditions being met.
When inheritance tax must be paid
Inheritance tax is normally due by the end of the sixth month after the person died. For a death in January, for example, tax is due by 31 July (gov.uk, paying inheritance tax, as at August 2026, subject to change). Tax on some assets that take time to sell, such as property, can be paid in yearly instalments over up to 10 years, though interest may be added (gov.uk, yearly instalments, as at August 2026, subject to change). The tax is usually settled by the executors or administrators before the estate is distributed, which is part of the wider probate process.
What is changing
Two announced changes matter for future calculations. The nil-rate band, residence nil-rate band and £2,000,000 taper threshold are frozen until 5 April 2031, the end of the 2030-31 tax year, after the freeze was extended a further year at the Autumn Budget 2025 (gov.uk, 26 November 2025, subject to change). As estate values rise while the thresholds stay fixed, more estates may come within the tax over time. Separately, from 6 April 2027 most unused pension funds and death benefits are due to be brought within the value of the estate for inheritance tax (gov.uk, announced Autumn Budget 2024, subject to change). Reviewing an estate plan ahead of these dates is one reason families look at the figures early.
- Standard rate 40%; reduced rate 36% where 10%+ of the net estate passes to charity (gov.uk).
- Nil-rate band £325,000; residence nil-rate band up to £175,000 (gov.uk).
- Residence band withdrawn by £1 for every £2 the estate is above £2,000,000 (gov.uk).
- Thresholds frozen until 5 April 2031 (gov.uk, 26 November 2025).
- Tax normally due by the end of the sixth month after death (gov.uk).
Scotland and Northern Ireland
Inheritance tax is a UK-wide tax, so the rate and thresholds above apply across Scotland and Northern Ireland as well as England and Wales. The wider rules for administering an estate differ. Scotland uses confirmation rather than a grant of probate and has its own succession law, including legal rights that can give a spouse and children a fixed share. Northern Ireland has a separate but broadly similar system to England and Wales. Where an estate touches more than one jurisdiction, it can be worth taking advice in each.
Frequently asked questions
How much can you inherit before paying inheritance tax?
An estate can pass on £325,000 free of inheritance tax under the nil-rate band, plus up to a further £175,000 where a home is left to direct descendants under the residence nil-rate band. A single person leaving a home to children may therefore reach up to £500,000, and a married couple or civil partners up to £1,000,000, before the 40% rate applies. Figures as at August 2026 (gov.uk), subject to change.
What percentage is inheritance tax in the UK?
The standard rate is 40%, charged only on the part of an estate above the available tax-free thresholds. A reduced rate of 36% applies where at least 10% of the net estate is left to charity. Figures as at August 2026 (gov.uk), subject to change.
Do you pay inheritance tax on a house?
A home forms part of the estate and is included in the calculation at its market value. Where a main home passes to direct descendants, the residence nil-rate band of up to £175,000 can apply on top of the £325,000 nil-rate band. Tax at 40% is only charged on any value above the thresholds. Figures as at August 2026 (gov.uk), subject to change.
How is inheritance tax calculated on gifts?
Gifts made in the seven years before death are added back into the estate. Where they exceed the nil-rate band, tax on the gift can be reduced by taper relief, which lowers the tax rather than the value: 32% at three to four years before death, 24% at four to five, 16% at five to six, and 8% at six to seven years. After seven years the gift is generally free of inheritance tax. Figures as at August 2026 (gov.uk), subject to change.
Who pays the inheritance tax bill?
Inheritance tax is usually paid from the estate by the executors named in the will, or by the administrators where there is no will, before the estate is shared out. Tax on gifts made within seven years can in some cases fall to the person who received the gift. It is normally due by the end of the sixth month after death. As at August 2026 (gov.uk), subject to change.
Does everyone pay inheritance tax?
No. Most estates pay no inheritance tax because their value falls within the thresholds, and transfers between spouses or civil partners are generally exempt. Tax tends to arise on larger estates or where allowances have been used up. The nil-rate bands and taper threshold are frozen until 5 April 2031, which may bring more estates within the tax over time. As at August 2026 (gov.uk, 26 November 2025), subject to change.