Inheritance Tax Planning Calculator UK 2026

Q: How can I reduce Inheritance Tax in the UK?

The main IHT reduction strategies are: making annual gifts (£3,000 per year exempt), using the 7-year gift rule for larger gifts, leaving assets to a spouse or civil partner (exempt), leaving 10% or more of net estate to charity (reduces rate to 36%), claiming Business Property Relief on qualifying business assets, using pension funds (currently excluded from IHT), and setting up certain trusts. Combining several strategies can dramatically reduce your IHT liability.

Q: What is the 7-year gift rule for Inheritance Tax?

If you give away assets and survive for 7 full years after making the gift, it becomes exempt from IHT. If you die within 7 years, taper relief reduces the IHT owed: 0-3 years 40%, 3-4 years 32%, 4-5 years 24%, 5-6 years 16%, 6-7 years 8%. The gift must be an outright Potentially Exempt Transfer (PET) to an individual — gifts into most trusts do not qualify as PETs.

Q: What is the nil-rate band for Inheritance Tax in 2026?

The standard nil-rate band (NRB) is £325,000 and has been frozen since 2009, expected to remain at this level until at least April 2028. Married couples and civil partners can transfer unused NRB to each other, giving a combined allowance of up to £650,000. The Residence Nil-Rate Band (RNRB) adds up to £175,000 per person when a main residence passes to direct descendants.

Q: Can I give my house away to avoid Inheritance Tax?

Simply transferring your home to your children while continuing to live there does not remove it from your estate — this is a gift with reservation of benefit and HMRC will still include the property at death. To avoid this you must pay full market rent to the new owner or genuinely move out. Specialist legal advice is essential before attempting this strategy.

Q: How does Business Property Relief work for IHT?

Business Property Relief (BPR) gives up to 100% relief on qualifying business assets including shares in unlisted trading companies, interests in a trading business, and AIM shares held for 2 or more years. Farm and agricultural property qualifies for Agricultural Property Relief (APR) at 100% or 50%. Note that from April 2026, proposed reforms may cap the combined 100% BPR/APR relief at £1 million per estate.

Calculate how to reduce your Inheritance Tax bill through gifting, trusts, business relief and pension planning. See how much IHT you could save with proper planning.

IHT Planning Calculator

Enter your estate details to see your current IHT liability and how planning strategies could reduce it.

Gross Estate Value (£)

Claim Residence Nil-Rate Band?

Transfer unused spouse/civil partner NRB?

Transfer unused spouse/civil partner RNRB?

Annual Gifts last 7 years total (£)£3,000/yr exempt plus small gift exemptions already deducted

Years since largest gift was made

Business/Farm Assets qualifying for BPR/APR (£)

Pension Assets (£ — currently excluded from IHT)

Charitable Bequests (£)If ≥10% of net estate, IHT rate reduces to 36%

Understanding Inheritance Tax Planning in the UK

Inheritance Tax (IHT) is charged at 40% on the value of your estate above the available nil-rate bands. With the frozen NRB of £325,000 and rising property values, more estates are being caught by IHT than ever before. Effective planning can legally and substantially reduce the amount your beneficiaries will pay.

The Nil-Rate Band and Residence Nil-Rate Band

Every UK-domiciled individual has a standard nil-rate band of £325,000. Married couples and civil partners can transfer any unused NRB to each other, giving a potential combined allowance of £650,000. The Residence Nil-Rate Band (RNRB) adds a further £175,000 per person (£350,000 for couples) when a main residence passes to direct descendants such as children or grandchildren. The RNRB tapers for estates over £2 million.

The 7-Year Gift Rule and Potentially Exempt Transfers

Gifts made to individuals are Potentially Exempt Transfers (PETs). If the donor survives 7 years from the date of the gift, the gift becomes fully exempt from IHT. If death occurs within 7 years, taper relief applies to reduce the tax owed. However, the gift still uses up the nil-rate band first — only any excess above the NRB attracts the tapered rate.

Business Property Relief and Agricultural Property Relief

Business Property Relief (BPR) gives 100% or 50% relief on qualifying business interests and shares. Agricultural Property Relief (APR) works similarly for farmland and farm buildings. These reliefs can eliminate IHT on significant assets. Note that proposed changes from April 2026 may cap the combined BPR/APR 100% relief at £1 million per estate.

Taper Relief Reference Table

Years Between Gift and Death	IHT Rate on Excess	Effective Taper
0 – 3 years	40%	0%
3 – 4 years	32%	20%
4 – 5 years	24%	40%
5 – 6 years	16%	60%
6 – 7 years	8%	80%
7+ years	0%	Fully exempt

Frequently Asked Questions — Inheritance Tax Planning

How can I reduce Inheritance Tax in the UK?

The main IHT reduction strategies include making annual gifts (£3,000 per year exempt), using the 7-year gift rule for larger gifts, leaving assets to a spouse or civil partner, leaving 10% or more of the net estate to charity (reduces the rate to 36%), claiming Business Property Relief on qualifying business assets, ensuring pension nominations are up to date, and using certain types of trust. Combining several strategies can dramatically reduce your IHT liability.

What is the 7-year gift rule for Inheritance Tax?

If you give away assets and survive for 7 full years, the gift becomes exempt from IHT. Taper relief applies if death occurs within 7 years: 0–3 years 40%, 3–4 years 32%, 4–5 years 24%, 5–6 years 16%, 6–7 years 8%. The gift must be an outright transfer to an individual — gifts into discretionary trusts are chargeable immediately.

What is the nil-rate band for Inheritance Tax in 2026?

The standard nil-rate band is £325,000 and has been frozen since 2009. It is expected to remain at this level until at least April 2028. Couples can combine allowances giving up to £650,000, plus the Residence Nil-Rate Band of up to £175,000 per person when a qualifying property passes to direct descendants.

Can I give my house away to avoid Inheritance Tax?

Simply transferring your home while continuing to live there does not remove it from your estate — this is a gift with reservation of benefit and HMRC will still include the property at its value at death. You must pay full market rent to the new owner or genuinely vacate the property. Legal and tax advice is essential before attempting this strategy.

How does Business Property Relief work for IHT?

Business Property Relief (BPR) gives 100% IHT relief on shares in unlisted trading companies, interests in a trading business, and qualifying AIM shares held for 2 or more years. Agricultural Property Relief works similarly for farmland. These reliefs can be highly valuable for business owners and farmers. Proposed reforms from April 2026 may limit the combined 100% BPR/APR relief to £1 million per estate.