Inheritance tax calculator
Most estates pay no inheritance tax, but the 40% rate above the allowances catches families who own a home. This shows the nil-rate bands, the taxable slice and the likely bill.
How inheritance tax is worked out
The starting point is the nil-rate band of £325,000, which every estate can pass on tax-free. If your main home goes to children or grandchildren, a residence nil-rate band of up to £175,000 is added, so a single person can leave up to £500,000 before anything is taxed. Whatever sits above the combined allowance is charged at 40%.
Two rules change the picture for larger estates. The residence band tapers away once the estate is worth more than £2 million, losing £1 for every £2 above that line, so a very large estate loses it entirely. In the other direction, anything left to a spouse or civil partner is fully exempt, and their unused allowances transfer, which is how many couples reach a combined £1 million tax-free.
Worked example
Consider a £700,000 estate that includes a home worth £350,000 left to the children. The nil-rate band of £325,000 and the full £175,000 residence band together shelter £500,000. That leaves £200,000 taxable at 40%, a bill of £80,000. The heirs receive £620,000. Had the same estate been left entirely to a spouse, the bill would be nil.
Common questions
How much can you inherit tax-free?
Every estate has a nil-rate band of £325,000. When a home is left to children or grandchildren, a residence nil-rate band of up to £175,000 is added, giving a single person up to £500,000 before any tax. Anything above the combined band is taxed at 40%.
What is the residence nil-rate band?
It is an extra allowance of up to £175,000 that applies only when your main home passes to direct descendants, meaning children, stepchildren, grandchildren and so on. It is capped at the value of the home, and it tapers away by £1 for every £2 that the estate is worth above £2 million.
Is money left to a spouse taxed?
No. Anything left to a husband, wife or civil partner is exempt from inheritance tax, whatever the amount. On top of that, any unused nil-rate band and residence band pass to the surviving partner, so a couple can often leave up to £1 million between them before tax.
How much inheritance tax on a £700,000 estate?
If a £700,000 estate includes a home left to children, the allowances come to £500,000, leaving £200,000 taxed at 40%. That is a bill of about £80,000, an effective rate of 11.4%.
When is inheritance tax paid?
It is normally due within six months of the end of the month of death, and often has to be paid before probate is granted. Tax on a house or other property can be spread over ten yearly instalments. This tool gives a rough estimate only, not a probate figure.