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Inheritance Tax

Inheritance Tax Calculator: How Inheritance Tax Is Worked Out

Estimate a possible inheritance tax position and see, step by step, how the sum is put together in England and Wales.

9 min read · Written by the Fairchild Oldfield team · Last reviewed: June 2026

40%
The standard inheritance tax rate, charged only on the part of an estate above the available tax-free thresholds, not on the whole estate.
Source: gov.uk/inheritance-tax, as at June 2026, subject to change.

Inheritance tax is worked out by taking the total value of an estate, subtracting the tax-free thresholds and any exemptions that apply, and charging 40% on what is left. In many estates the tax due is nil, because the thresholds cover the whole estate.

This page explains the sum in plain terms and gives an illustrative estimator you can use as a starting point. It covers the nil-rate band, the residence nil-rate band, how married couples and civil partners combine their allowances, and where the figures can shift. For the wider picture, see our Inheritance Tax Explained guide and the detailed Inheritance Tax thresholds and allowances for 2026/27. Figures are current as at June 2026 and are subject to change.

How inheritance tax is worked out

Inheritance tax is charged on the value of an estate above the available tax-free amount, known as the nil-rate band. You add up the value of everything owned (property, savings, investments and possessions), take off debts and any exemptions, then compare the result to the thresholds. The standard rate is 40% on the excess (gov.uk, as at June 2026, subject to change). Nothing is charged on the part covered by the thresholds.

The core of the calculation is short. Everything else, such as the residence band, exemptions for spouses and charities, and lifetime gifts, adjusts the figures that go into it.

  1. Total the estate. Property, savings, investments, business interests and possessions.
  2. Deduct debts and liabilities. Mortgages, loans and reasonable funeral costs give the net estate.
  3. Apply exemptions. Assets passing to a spouse, civil partner or charity are generally exempt.
  4. Subtract the thresholds. The nil-rate band, plus the residence nil-rate band where a home passes to direct descendants.
  5. Charge 40% on the balance. A reduced rate of 36% can apply where 10% or more of the net estate goes to charity.

An illustrative inheritance tax estimator

This estimator applies the June 2026 thresholds to the figures you enter. It is a general illustration to show how the sum behaves, not a calculation for any particular estate and not advice. It uses a simplified version of the rules and does not account for lifetime gifts, trusts, business or agricultural relief, or the residence band taper above £2,000,000. Results depend on individual circumstances, and the figures are subject to change.

Inheritance tax estimator

Illustration only, using June 2026 figures. Not advice.

Adds up to £175,000 of residence nil-rate band where it applies.

Reflects a surviving spouse or civil partner who inherited unused nil-rate and residence bands, up to double the thresholds.

£0
General illustration using June 2026 figures from gov.uk/inheritance-tax, subject to change. This is not a calculation for your estate and not advice. Many people choose to check their position with a qualified professional.

The estimator uses the nil-rate band of £325,000, the residence nil-rate band of up to £175,000, and rates of 40% and 36% (gov.uk/inheritance-tax, as at June 2026, subject to change).

The tax-free thresholds

The allowances that go into the sum

The thresholds are the figures you subtract before any tax is charged. The nil-rate band applies to every estate. The residence nil-rate band is an extra amount available when a home passes to children or grandchildren, and it reduces for larger estates. Married couples and civil partners can generally combine both sets of allowances (gov.uk, as at June 2026, subject to change).

Allowance or rateLevel (June 2026)
Nil-rate band (per person)£325,000
Residence nil-rate band (per person)Up to £175,000
Combined, one person with a homeUp to £500,000
Combined, a couple with a homeUp to £1,000,000
Standard rate40%
Reduced rate (10%+ to charity)36%
Residence band taper threshold£2,000,000

Source: gov.uk/inheritance-tax. These thresholds are frozen until the end of the 2030-31 tax year (5 April 2031) (gov.uk, as at June 2026), subject to change.

The tapering point

£2,000,000

Above this figure, the residence nil-rate band reduces by £1 for every £2 the estate is worth over £2,000,000. A large enough estate can lose the residence band entirely, which is one reason the sum can be less simple than it first appears.

A worked example, step by step

An example is often clearer than the rules. This one is an illustration only and does not reflect any real estate. It shows how the thresholds turn a large estate value into a much smaller taxable amount, and how the residence band and a spouse's transferred allowances change the answer.

Illustration only. Priya is widowed and owns a home worth £450,000 plus other assets of £550,000, so £1,000,000 in total, with no debts. Her late husband left everything to her, so his unused nil-rate band and residence nil-rate band transfer to her. Her home is passing to her children. She therefore has two nil-rate bands (£650,000) and two residence nil-rate bands (£350,000), which is £1,000,000 of tax-free thresholds. In this illustration the £1,000,000 estate falls within those combined thresholds, so the estimated tax is nil. Every estate is different, the residence band tapers above £2,000,000, and the figures change, so this is general information rather than a calculation for a real situation.

Change one figure and the answer moves. If Priya's other assets were £750,000 instead of £550,000, her estate would be £1,200,000. Subtracting the same £1,000,000 of thresholds leaves £200,000 taxable, and 40% of that is an estimated £80,000. Because the estate is still below £2,000,000, the residence band is not tapered in this illustration. This is why a small change in estate value can create a bill where there was none, and why some people review the position as asset values rise.

The reduced 36% rate can also change the outcome. Where 10% or more of the net estate (the amount above the thresholds) is left to charity, the rate on the taxable part falls from 40% to 36% (gov.uk, as at June 2026, subject to change).

Lifetime gifts

How gifts affect the calculation

Gifts made in the years before death can be added back into the sum. The estimator above does not model this, so it can be worth understanding separately.

Most gifts made more than seven years before death fall outside the estate. Gifts made within seven years may be counted, and where tax is due on them, taper relief can reduce it on a sliding scale (gov.uk/inheritance-tax/gifts, as at June 2026, subject to change). There is also an annual exemption of £3,000 of gifts each tax year that generally falls outside the estate (gov.uk, as at June 2026, subject to change).

Years between gift and deathRate on the taxable gift
Less than 3 years40%
3 to 4 years32%
4 to 5 years24%
5 to 6 years16%
6 to 7 years8%
7 years or more0%

Source: gov.uk/inheritance-tax/gifts, as at June 2026, subject to change. Taper relief applies to the tax on gifts, and generally only where total gifts in the seven years exceed the nil-rate band. The detail can be involved, so it can be worth discussing with a qualified professional.

What an estimate does not show

A calculator gives a snapshot from a single set of figures. It does not consider reliefs such as business or agricultural relief, the effect of trusts, or a plan of gifting over time, all of which can change the outcome. It also cannot take account of your wider goals. For the options people consider, see our guide on how to reduce Inheritance Tax legally and the wider estate planning guide. None of these approaches guarantees a particular result, and the rules change.

Because inheritance tax interacts with wills, trusts, pensions and care costs, many people choose to look at the whole picture rather than one figure. One option some consider is a review with a qualified professional, such as a solicitor, a STEP practitioner, an accountant, or an FCA-authorised financial adviser, who can weigh the full position before anything is put in place.

Inheritance tax in Scotland and Northern Ireland

Inheritance tax itself is a UK-wide tax, so the thresholds and the 40% rate apply across Scotland, England, Wales and Northern Ireland. What differs is the surrounding law. Scotland has its own succession rules, including legal rights that can entitle a spouse and children to a fixed share of an estate, and it uses confirmation rather than a grant of probate. Northern Ireland has a separate but broadly similar system to England and Wales. Where an estate crosses jurisdictions, it can be worth taking advice in each.

Frequently asked questions

How is inheritance tax calculated?

You add up the value of the estate, deduct debts and any exemptions, then subtract the available tax-free thresholds. The nil-rate band is £325,000 per person, with up to £175,000 more where a home passes to direct descendants (gov.uk, as at June 2026, subject to change). Inheritance tax is charged at 40% on the amount left above the thresholds.

How much can you inherit before paying inheritance tax?

An individual can generally pass on up to £325,000, rising to as much as £500,000 where a home goes to children or grandchildren. A married couple or civil partners can combine their allowances, potentially up to £1,000,000 (gov.uk, as at June 2026, subject to change). Amounts above the available thresholds may be taxed at 40%, depending on circumstances.

Do you pay inheritance tax on the whole estate?

No. Inheritance tax is charged only on the part of an estate above the available tax-free thresholds, not on the whole estate. If the estate is worth less than the thresholds, there is generally no inheritance tax to pay. Assets passing to a spouse, civil partner or charity are usually exempt as well (gov.uk, as at June 2026, subject to change).

How much inheritance tax is due on a £500,000 estate?

It depends on the estate. A single person with a £500,000 estate that includes a home passing to children may fall within the £500,000 of combined thresholds, so the estimated tax could be nil. Without the residence band, £175,000 might sit above the £325,000 nil-rate band, giving an illustrative 40% charge on that part (gov.uk, as at June 2026, subject to change). Individual circumstances change the answer.

Is an inheritance tax calculator accurate?

A calculator gives a useful illustration, not a definitive figure. Estimators generally simplify the rules and often leave out lifetime gifts, trusts, business or agricultural relief, and the residence band taper above £2,000,000. The result can differ from a full assessment, so many people treat an estimate as a starting point and check the detail with a qualified professional.

Who pays the inheritance tax bill?

Inheritance tax is usually paid from the estate itself, and the executors or administrators generally arrange it before assets are distributed. Tax on some lifetime gifts can fall to the person who received the gift. The rules on timing and payment can be involved, so it can be worth discussing the position with a qualified professional (gov.uk, as at June 2026, subject to change).

About Fairchild Oldfield

The Fairchild Oldfield team brings together estate planning, tax, independent financial advice and client care, working with families across England and Wales.

Fairchild Oldfield are estate planning specialists and will writers, not a firm of solicitors. This article is general information based on practical experience, not legal, tax or financial advice.

Important: This article and estimator are general information only and are not legal, tax or financial advice. Reading them does not create a professional relationship. The estimator is an illustration and not a calculation for any particular estate. This content is based on the law of England and Wales, and other UK jurisdictions may differ. Figures and rules are current as at June 2026 and are subject to change. Before acting, many people choose to seek advice from a suitably qualified professional, such as a solicitor, a STEP practitioner, an accountant, or an FCA-authorised financial adviser, who can consider individual circumstances.

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