Calculate inheritance tax liability with nil rate bands, residence allowances, and comprehensive exemptions
Enter estate details to calculate IHT liability with all available allowances and exemptions
| Allowance/Rate | Amount | Details |
|---|---|---|
| Nil Rate Band | £325,000 | Standard IHT threshold |
| Residence Nil Rate Band | £175,000 | Additional allowance for main residence |
| Combined Allowance (individual) | £500,000 | Maximum allowance for single person |
| Combined Allowance (married couple) | £1,000,000 | Maximum allowance for married couples |
| Standard IHT Rate | 40% | Rate on estate above allowances |
| Reduced Rate (charity) | 36% | When 10%+ left to charity |
| Annual Gift Exemption | £3,000 | Per person per year |
| Relief Type | Rate | Qualifying Assets |
|---|---|---|
| Business Property Relief | 100% | Unquoted shares, business assets |
| Business Property Relief | 50% | Quoted shares (controlling interest) |
| Agricultural Property Relief | 100% | Owner-occupied farmland |
| Agricultural Property Relief | 50% | Let agricultural property |
| Spouse/Civil Partner | 100% | Unlimited exemption |
| Charitable Gifts | 100% | Gifts to UK registered charities |
Expert strategies to minimize IHT liability and preserve wealth for your beneficiaries. IHT planning can save families £40,000-£400,000+.
How it works: Gifts to individuals become fully IHT-free if you survive 7 years after making the gift. This is the most powerful IHT planning tool for larger estates.
Taper relief (3-7 years): If you die within 7 years, the gift is added back to your estate, but taper relief applies: 0-3 years = 0% relief, 3-4 years = 20% relief, 4-5 years = 40%, 5-6 years = 60%, 6-7 years = 80%, 7+ years = 100% exempt.
Example: Gift £400,000 to child at age 60. If you survive to 67 (7 years), the £400,000 is fully exempt from IHT, saving potential £160,000 in IHT (40% of £400K)!
✅ Strategy: Make large gifts as early as possible (start the 7-year clock), maintain good health records, keep gift records with dates, consider life insurance to cover potential IHT on gifts if you die within 7 years.
How it works: Every UK resident can gift £3,000/year IHT-free. You can carry forward 1 year unused allowance (total £6,000 if previous year unused). These gifts are immediately exempt (no 7-year wait!).
Additional exemptions: Small gifts (£250/person unlimited recipients), wedding gifts (£5,000 to child, £2,500 to grandchild, £1,000 to others), regular gifts from surplus income (unlimited if from income not capital).
Example: Couple (both age 65) with 2 children, 4 grandchildren. Each spouse uses £3,000 annual exemption + £250 small gifts to 6 people = (2 × £3,000) + (2 × 6 × £250) = £9,000/year IHT-free! Over 20 years = £180,000 gifted, saving potential £72,000 IHT.
✅ Strategy: Use £3,000 exemption every year (don't waste it!), give £250 small gifts to multiple people, establish regular monthly gifts from income (document income vs expenses), combine with 7-year rule for larger gifts.
How it works: Additional £175,000 IHT-free allowance when you leave your main residence to children or grandchildren (direct descendants). Married couples can combine for £350,000 total RNRB.
Requirements: Must leave main home (or proceeds if downsized after July 2015) to direct descendants. RNRB tapers by £1 for every £2 estate exceeds £2 million (fully withdrawn at £2.35 million+ estates).
Example: Widow dies 2024 with £900,000 estate (house £500,000 to children, savings £400,000). Allowances: £325,000 own NRB + £325,000 inherited spouse NRB + £175,000 own RNRB + £175,000 inherited spouse RNRB = £1 million total. IHT: £0!
✅ Strategy: Ensure will leaves property to children/grandchildren (not siblings/friends), claim both spouse's RNRBs if widowed, downsize carefully after July 2015 (keep records to claim RNRB on proceeds), consider reducing estate below £2M taper threshold via gifting.
How it works: Transfers between married couples/civil partners are 100% IHT-free with no limit. Unused allowances transfer to surviving spouse (up to 100% of NRB and RNRB).
Common mistake: First spouse leaves everything to children (uses up allowances). Better strategy: first spouse leaves everything to surviving spouse (preserves allowances), then second death gets double allowances (£1 million for married couples).
Example: Husband dies 2010 with £300,000 estate, leaves all to wife (£0 IHT, 100% unused allowances). Wife dies 2024 with £950,000 estate. Her allowances: £325k own + £325k inherited + £175k own RNRB + £175k inherited RNRB = £1 million. Taxable: £0!
✅ Strategy: First death: leave everything to spouse (preserve allowances), second death: claim transferred allowances via IHT402 form, non-married partners: consider marriage/civil partnership (worth up to £400,000 tax savings vs cohabiting partners with no exemption).
How it works: Business Property Relief (BPR): 100% relief for unquoted shares, business assets, sole trader business. 50% relief for controlling interest in quoted companies. Agricultural Property Relief (APR): 100% for owner-occupied farmland, 50% for let agricultural property.
Requirements: BPR: owned for 2+ years before death, must be trading business (not investment company). APR: owned for 2+ years (or 7 years if inherited), must be agricultural land/buildings.
Example: Business owner dies with estate: £500,000 family business (unquoted shares) + £300,000 house + £200,000 savings = £1 million total. BPR: -£500,000 (100% relief). Net estate: £500,000. Allowances: -£500,000. IHT: £0 (BPR saves £200,000 IHT!)
✅ Strategy: Hold business/farm for 2+ years before death, ensure business is trading (not just investment), consider AIM shares (many qualify for 100% BPR), get professional valuation (HMRC challenges common), document business activities for HMRC.
How it works: Life insurance policy written in trust pays out directly to beneficiaries (not part of estate). Beneficiaries receive payout immediately to pay IHT bill (no need to sell property quickly).
IHT problem: IHT due 6 months after death. Estate includes illiquid assets (property). Beneficiaries forced to sell property quickly (below market value) to pay IHT.
Example: Estate £800,000 (house £600,000 + savings £200,000). IHT: £120,000 due. Savings only £200,000 (not enough after funeral costs). Without life insurance: forced house sale at £550,000 (rushed sale). With £150,000 life insurance in trust: beneficiaries receive £150,000 immediately, pay IHT £120,000, keep house, save £50,000 vs rushed sale!
✅ Strategy: Calculate estimated IHT liability, take out "whole of life" policy for IHT amount, write policy in trust (not part of estate), review policy every 5 years (estate values change), consider joint life "second death" policy for married couples (cheaper).
How it works: Unused pension pots are typically IHT-free! Defined contribution pensions (not annuities) can be passed to beneficiaries outside of your estate. This is one of the most overlooked IHT planning tools.
Tax treatment: Die before age 75: beneficiaries receive pension tax-free (no income tax, no IHT). Die after age 75: beneficiaries pay income tax at their marginal rate (but still no IHT). Contrast with ISAs: ISAs ARE part of estate and subject to IHT.
Example: Age 70 retiree with £400,000 pension + £400,000 ISA savings. Strategy A (spend pension first): Die at 80 with £0 pension + £400,000 ISA. Estate: £400,000 ISA subject to IHT. Strategy B (spend ISA first): Die at 80 with £400,000 pension + £0 ISA. Pension passes IHT-free, saves up to £160,000 IHT!
✅ Strategy: Keep pension invested (don't buy annuity if IHT concern), spend ISA/savings first in retirement (preserve pension), nominate beneficiaries via pension "expression of wish" form, die before 75 if possible for tax-free inheritance (joke, but the tax rules encourage this!), consider pension as multi-generational wealth transfer tool.
Avoid these common IHT errors that cost UK families thousands every year. Learn from others' mistakes!
The mistake: Dying without a will (intestacy). Estate distributed by intestacy rules: spouse gets £322,000 + half remainder (rest to children). This can waste residence nil-rate band and create unnecessary IHT.
Common scenario: Unmarried partners (cohabiting): no automatic inheritance rights! Partner receives £0. Entire estate to children/parents = wastes spouse exemption potential.
Example cost: Cohabiting couple, one dies with £600,000 estate. Intestacy rules: estate to deceased's children (not partner). Partner inherits nothing. If married, would have unlimited spouse exemption. IHT on partner's death: potential £240,000 vs £0 if married!
✅ Fix: Make a will (costs £100-£500 vs £thousands lost in IHT), review will every 5 years or after major life events, specify property left to direct descendants (claim RNRB), appoint executors, consider professional will writing service.
The mistake: Not using £3,000 annual gift exemption every year. Unlike other allowances, you can't claim this retrospectively. "Use it or lose it" forever.
Lost potential: Married couple age 50, never uses exemption. Over 40 years to age 90: 2 × £3,000 × 40 years = £240,000 could have been gifted IHT-free. Actual saving: £96,000 IHT avoided.
Example: Couple with £1.2 million estate, don't use gift exemptions. IHT on death: (£1,200,000 - £1,000,000) × 40% = £80,000. If they'd used £3,000/year each for 20 years (£120,000 gifted): estate £1,080,000, IHT £32,000. Lost savings: £48,000!
✅ Fix: Set annual calendar reminder (gift £3,000 before each tax year ends April 5th), both spouses use allowance independently (£6,000/year combined), combine with small gifts £250/person to maximize, keep gift records with dates.
The mistake: Waiting until old age/poor health to make large gifts. Die before 7 years passes, and entire gift is added back to estate for IHT calculation.
Example cost: Age 78, gifts £300,000 to children (worried about IHT). Dies age 80 (only 2 years later). Gift added back to estate, no taper relief (need 3+ years for taper). If estate over threshold: £300,000 × 40% = £120,000 IHT on gift! Same gift at age 60 (survived to 80 = 20 years) would be fully exempt.
✅ Fix: Make gifts as early as possible (start the 7-year clock young), "gift and survive" strategy: gift at 60-70 (better survival odds 7 years vs age 80+), consider life insurance to cover IHT on gifts if you die early, spread gifts over multiple years (combine with annual exemptions).
The mistake: Executors/beneficiaries don't claim transferred nil-rate band and RNRB from deceased spouse. You must actively claim via HMRC form IHT402 (not automatic!).
Example cost: Husband died 2005, left £200,000 estate all to wife (£0 IHT, 100% allowances unused). Wife dies 2024 with £1 million estate. Executors don't claim transferred allowances. Wife's estate pays IHT on (£1M - £500K) × 40% = £200,000. If they'd claimed transferred allowances (£1M total allowances): IHT = £0. Lost: £200,000!
✅ Fix: Complete HMRC form IHT402 with IHT400 return, provide first spouse's death certificate + will, calculate unused percentage (even if first spouse died before 2007 when rule introduced, can still claim!), get professional help if complex estate.
The mistake: Leaving property to non-direct descendants (siblings, friends, charity) or selling property and not keeping records for downsizing provisions. Result: lose £175,000 RNRB (£70,000 IHT cost!).
Example cost: £700,000 estate (house £400,000 left to sibling, savings £300,000 to children). No RNRB (house not to direct descendants). Allowances: £325,000 only. Taxable: £375,000. IHT: £150,000. If house left to children instead: allowances £500,000, IHT £80,000. Mistake cost: £70,000!
✅ Fix: Update will to leave property (or equivalent value) to children/grandchildren, if downsizing after July 2015: keep records (prove property value at downsize date to claim downsizing relief), stepchildren count as direct descendants, adopted children count, foster children don't count (update will if needed).
The mistake: Undervaluing assets (especially property, business interests, shares) on IHT400 form. HMRC investigates 5-10% of estates. Significant undervaluation = 20% penalty minimum.
Common undervaluation areas: Property (use "probate valuation" not Rightmove estimate), private company shares (need professional valuation), overseas assets (don't forget foreign bank accounts/property), personal possessions worth £500+ individually (art, jewelry, cars).
Example cost: Estate declared £800,000 (property valued £500,000). HMRC investigation finds property actually worth £650,000. Underpaid IHT: £150,000 × 40% = £60,000. Penalty for carelessness: 20% × £60,000 = £12,000 penalty + £60,000 tax + interest!
✅ Fix: Get professional probate valuation for property (RICS surveyor), get 3 estate agent valuations (use average), value shares/funds at date of death (not months later!), declare all foreign assets, keep receipts for valuations (defend HMRC challenges), use HMRC's Shares Valuation Division for unlisted shares.
The mistake: Not knowing business/agricultural assets qualify for significant IHT relief. Many family businesses/farms qualify for 100% relief but executors don't claim.
Qualifying assets: BPR: unquoted company shares (100%), business property/assets (100%), controlling shareholding in quoted company (50%), partnership interest (100%). APR: farmland owner-occupied (100%), farmland let (50%), farm buildings (100%).
Example cost: Farmer dies with £1.5 million estate (£1 million farmland + £500,000 other assets). Executors don't claim APR. IHT: (£1,500,000 - £325,000) × 40% = £470,000. With APR claimed: farmland exempt, taxable only £500,000 - £325,000 = £175,000 × 40% = £70,000 IHT. Mistake cost: £400,000!
✅ Fix: Get professional advice if you own business/farm (complex rules!), ensure you've owned assets 2+ years before death, document business is "trading" not investment activity, consider AIM shares (many qualify for 100% BPR after 2 years), keep business records for HMRC (prove relief qualification).
Authoritative guidance from HMRC and UK government sources on inheritance tax planning, forms, and regulations.
Complete guide to IHT rates, allowances, exemptions, and how to pay. Essential starting point for understanding UK inheritance tax.
Key info: Nil rate band (£325,000), residence nil-rate band (£175,000), 40% standard rate, 36% charity reduction rate
Visit GOV.UK IHT Guide →Download IHT400 (full account), IHT205 (excepted estates), IHT402 (claim transferable nil-rate band), and supporting schedules.
Most common: IHT400 (full estate return), IHT402 (claim spouse allowances), IHT407 (gifts schedules)
Download IHT Forms →Speak to HMRC IHT specialists for help completing forms, valuing estates, claiming reliefs, and paying IHT.
Phone: 0300 123 1072
Hours: Monday-Friday 9am-5pm
Wait times: Typically 5-15 minutes, busiest Monday mornings
Tip: Call Wednesday-Thursday 2-4pm for shortest wait times. Have National Insurance number and deceased's details ready.
Detailed guidance on exempt gifts (annual exemption £3,000, small gifts £250, wedding gifts), 7-year rule, taper relief, and potentially exempt transfers (PETs).
Covers: Annual exemptions, wedding gifts (£5K/£2.5K/£1K), normal expenditure out of income, 7-year rule, taper relief 3-7 years
Read Gift Exemptions →Comprehensive guide to claiming 50%-100% IHT relief on business assets, farmland, and AIM shares. Includes qualifying conditions and how to claim.
BPR: 100% for unquoted shares/business assets, 50% for controlling interest
APR: 100% owner-occupied farms, 50% let agricultural land
IHT payment methods, deadlines (6 months after death), installment options for property (10 annual payments), and late payment penalties/interest.
Payment deadline: 6 months after death (interest charged after)
Property installments: 10 annual payments available (interest applies)
Late payment: Penalties + interest from month 7
Complex estates (£1M+), business assets, or international property? Consult a specialist IHT solicitor or tax adviser. Typical cost: £1,500-£5,000, potential savings: £10,000-£400,000+.
Find specialists: Society of Trust and Estate Practitioners (STEP): www.step.org | Law Society: www.lawsociety.org.uk
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Proven inheritance tax planning tactics used by UK financial advisers to minimize IHT bills. Every strategy includes real UK 2025/26 examples with exact £ calculations showing how families legally save £10,000-£400,000+ by using allowances, exemptions, reliefs, and lifetime gifts properly. Updated January 2025 with Finance Act 2024 regulations.
How it works: Each person gets £325,000 Nil Rate Band (NRB) + £175,000 Residence Nil Rate Band (RNRB) if main home passes to children/grandchildren = £500,000 total per person. Married couples/civil partners can transfer unused allowances to surviving spouse on death. This means second spouse to die can use £1,000,000 combined allowances (£500,000 × 2) before 40% IHT applies. Critical: Must claim transferred NRB when second spouse dies (form IHT402 with probate application). Real UK example (2025/26): John dies 2020, leaves entire £400,000 estate to wife Mary (spouse exemption, £0 IHT). John's NRB £325,000 unused (100%). John's RNRB £175,000 unused (100%). Mary dies 2025, estate £900,000 (main home £500,000 passes to 2 children, other assets £400,000). Without transferring John's allowances: Mary's allowances: NRB £325,000 + RNRB £175,000 = £500,000. Taxable estate: £900,000 - £500,000 = £400,000. IHT: £400,000 × 40% = £160,000 tax bill. With transferring John's allowances (correct!): Mary's allowances: £500,000 (her own). John's transferred allowances: £325,000 NRB + £175,000 RNRB = £500,000. Combined: £500,000 + £500,000 = £1,000,000! Taxable estate: £900,000 - £1,000,000 = £0. IHT: £0! Tax saved: £160,000 - £0 = £160,000!
How it works: Gifts to individuals (not trusts) = "Potentially Exempt Transfers" (PETs). If you survive 7 years after making gift, it's IHT-free forever (falls out of estate). If you die within 7 years, gift counts towards estate for IHT, but taper relief applies 3-7 years (reduces IHT on gift). Taper relief: 3-4 years (20% off IHT), 4-5 years (40%), 5-6 years (60%), 6-7 years (80%). Critical: You must NOT benefit from gifted asset after giving it (no "reservation of benefit" or gift fails). Example: Can't gift house to children then continue living there rent-free (fails). Must pay market rent or gift fails. Real UK example (2025/26): Sarah, 65, owns £1,000,000 estate. Gifts £300,000 buy-to-let property to daughter Emma (outright, no strings). Sarah lives 8+ years after gift (dies age 73+). IHT on gift: £0 (survived 7 years, PET exempt!). Sarah's estate reduced to £700,000. Estate £700,000 uses £500,000 NRB+RNRB. Taxable: £700,000 - £500,000 = £200,000. IHT on estate: £200,000 × 40% = £80,000. Without gift (if Sarah kept £300,000 property): Estate: £1,000,000. Taxable: £1,000,000 - £500,000 = £500,000. IHT: £500,000 × 40% = £200,000. Tax saved by 7-year gift: £200,000 - £80,000 = £120,000!
How it works: Every UK taxpayer can gift £3,000/year IHT-free immediately (no 7-year wait, exempt day 1). Can carry forward unused exemption 1 year only (so can gift £6,000 if didn't use last year's). Plus unlimited small gifts £250/person/year to different people (can't combine with £3,000 to same person). Plus wedding gifts: £5,000 to child, £2,500 to grandchild, £1,000 to anyone else. All exempt immediately! Real UK example (2025/26): Margaret, widowed, estate £800,000. Wants to reduce IHT for 3 adult children. Year 1 (2025/26): Gifts: £3,000 annual exemption to Child 1. £3,000 carry-forward (unused 2023/24) to Child 2 = £6,000 total to Child 2. £250 small gift to Child 3. £250 small gift to each of 5 grandchildren = £1,250. Total gifted: £3,000 + £6,000 + £250 + £1,250 = £10,500. All IHT-free immediately (no 7-year clock!). Year 2 (2025/26): Gifts: £3,000 to Child 3. £250 each to Child 1, Child 2, 5 grandchildren = £1,750. Total: £4,750. Over 10 years: Gifts £3,000/year + £2,000 small gifts = £50,000 removed from estate. IHT saved: £50,000 × 40% = £20,000! Plus: Margaret's children invest £50,000, grows to £80,000 over 10 years. Growth £30,000 happens outside Margaret's estate (IHT-free!). Extra saving: £30,000 × 40% = £12,000. Total saved: £20,000 + £12,000 = £32,000!
How it works: Gifts from "normal expenditure out of income" are IHT-free immediately with NO LIMIT if: (1) Made regularly (pattern, not one-off), (2) From income (salary, pension, rental income, dividends), NOT capital, (3) Leave you with enough income to maintain normal standard of living. Examples: Paying £5,000/year into grandchild's ISA, paying £10,000/year towards child's private school fees, paying £2,000/month to elderly parent's care home. Critical: MUST KEEP RECORDS! Executor must prove gifts were from income on form IHT403. Keep spreadsheet showing income received, normal expenditure, surplus available, gifts made. Real UK example (2025/26): David, retired, receives: State pension £11,500/year, private pension £45,000/year, rental income £18,000/year. Total income: £74,500/year. David's living costs: £50,000/year (mortgage paid off, comfortable lifestyle). Surplus income: £74,500 - £50,000 = £24,500/year. David gifts: £10,000/year into daughter's Junior ISA (regular, every January since 2018). £12,000/year to son (£1,000/month standing order, regular since 2019). Total gifts: £22,000/year (within £24,500 surplus). IHT status: £0 (exempt as normal expenditure out of income!). David does this 10 years before death. Total gifted: £22,000 × 10 = £220,000. IHT saved: £220,000 × 40% = £88,000! Without this exemption: £220,000 would count as PETs (only exempt if survived 7 years). Gifts in last 7 years would be taxable. Using income exemption = ALL £220,000 immediately exempt (no 7-year wait)!
How it works: Qualifying business assets get 100% IHT relief (£0 IHT!) if owned 2+ years before death. Qualifying assets: Sole trader business, partnership share, unquoted company shares (including AIM shares), land/buildings/machinery used in qualifying business. Non-qualifying: Investment businesses (property rental portfolio, stock/share dealing), businesses mainly holding investments. Popular strategy: Invest in AIM shares qualifying for BPR (must be trading company, not investment company). Hold 2+ years before death = 100% IHT-free. Real UK example (2025/26): James, 70, estate £1,500,000 (main home £600,000, cash/ISAs £400,000, AIM portfolio £500,000). James invests £500,000 in BPR-qualifying AIM shares (trading companies, not investment trusts). Holds 3 years before death (age 73). IHT calculation: Estate: £1,500,000. BPR relief: £500,000 AIM shares × 100% = £500,000 relief. Estate after BPR: £1,500,000 - £500,000 = £1,000,000. NRB+RNRB: £500,000. Taxable: £1,000,000 - £500,000 = £500,000. IHT: £500,000 × 40% = £200,000. Without BPR (if £500,000 in normal shares/cash instead): Estate: £1,500,000. NRB+RNRB: £500,000. Taxable: £1,000,000. IHT: £1,000,000 × 40% = £400,000. Tax saved by BPR: £400,000 - £200,000 = £200,000! Warning: AIM shares are high-risk, volatile investments. Only suitable for experienced investors comfortable with risk. Value can fall significantly. Not financial advice—consult IFA specializing in IHT planning.
How it works: Beneficiaries can rewrite will within 2 years of death using "Deed of Variation" to reduce IHT. HMRC treats variation as if deceased made that change (backdated for IHT purposes). Common uses: (1) Spouse redirects inheritance to children to use deceased's NRB (otherwise wasted if all to spouse). (2) Children redirect inheritance to grandchildren (skips generation, uses exemptions twice). (3) Add 10% charity gift to get 36% reduced IHT rate (instead of 40%). Requirements: All affected beneficiaries must agree, must be in writing, must state "this variation is to have effect for IHT purposes" (exact wording), must be made within 2 years of death. Real UK example (2025/26): Robert dies 2024, leaves £800,000 estate entirely to wife Patricia (spouse exemption, £0 IHT paid). Patricia already has £600,000 own assets (total £1,400,000). Robert's will doesn't use his £325,000 NRB (wasted if all to spouse!). Problem: When Patricia dies, estate £1,400,000. Even with Robert's transferred NRB (£325,000 × 2 = £650,000) + RNRB (£175,000 × 2 = £350,000) = £1,000,000 allowances. Taxable: £1,400,000 - £1,000,000 = £400,000. IHT: £400,000 × 40% = £160,000. Solution via Deed of Variation (within 2 years): Patricia varies Robert's will: Redirects £325,000 to children (uses Robert's NRB now). Patricia keeps £475,000. Robert's estate IHT: £325,000 uses his NRB. IHT on Robert's death: £0 (within NRB). Patricia's estate reduced to: £600,000 (her own) + £475,000 (from Robert) = £1,075,000. When Patricia dies: Estate £1,075,000. Patricia's allowances: £500,000 (NRB + RNRB). Robert's transferred: £175,000 RNRB only (NRB already used). Total: £675,000. Taxable: £1,075,000 - £675,000 = £400,000. IHT: £400,000 × 40% = £160,000. Wait, same £160,000? Yes, BUT children received £325,000 IHT-free immediately! They invest it, grows to £450,000 over 10 years before Patricia dies. Growth £125,000 outside Patricia's estate. Saved: £125,000 × 40% = £50,000! Plus children had use of £325,000 for 10 years (time value of money).
How it works: If you leave 10%+ of "net estate" (after NRB/RNRB/debts) to UK registered charities, IHT rate drops from 40% to 36% on entire taxable estate. Charity gifts are IHT-free (spouse exemption too), so only 10% of what's left. Often your beneficiaries receive MORE by giving 10% to charity (due to lower 36% rate) than keeping 100% at 40% rate! Real UK example (2025/26): Linda dies, estate £900,000 (after debts). NRB+RNRB: £500,000. Net estate for 10% test: £900,000 - £500,000 = £400,000. Scenario A: No charity gift (standard 40% IHT): Taxable estate: £400,000. IHT: £400,000 × 40% = £160,000. Children receive: £900,000 - £160,000 = £740,000. Scenario B: Leave 10% to charity (get 36% reduced rate): 10% of net estate to charity: £400,000 × 10% = £40,000. Remaining taxable estate: £400,000 - £40,000 = £360,000. IHT at 36%: £360,000 × 36% = £129,600. Charity receives: £40,000. Children receive: £900,000 - £40,000 - £129,600 = £730,400. Children's difference: £730,400 vs £740,000 = £9,600 less. But £40,000 to charity! Actually children lose only £9,600 to give £40,000 to charity! £40,000 charity gift only "costs" children £9,600. Effective cost 24% (£9,600 ÷ £40,000). Larger estate example: Estate £2,000,000, net £1,500,000 (after £500,000 NRB+RNRB). 10% to charity: £150,000. Without charity: IHT £1,500,000 × 40% = £600,000. Beneficiaries: £1,400,000. With 10% charity: Taxable £1,350,000 × 36% = £486,000. Charity: £150,000. Beneficiaries: £1,364,000. Beneficiaries lose: £1,400,000 - £1,364,000 = £36,000. But charity gets £150,000! Children lose £36,000 to give £150,000 to charity (only 24% cost). Plus: IHT saving for estate: £600,000 - £486,000 = £114,000 less tax paid!
Expensive inheritance tax errors costing UK families £10,000-£400,000+ every year. These mistakes are completely preventable with proper planning and understanding of IHT rules. Learn what NOT to do with real UK 2025/26 examples showing exact financial consequences. Updated January 2025 with Finance Act 2024 regulations.
The mistake: When surviving spouse dies, executor doesn't claim deceased spouse's unused RNRB (£175,000). Must complete form IHT402 with probate application to transfer it. Many executors don't realize RNRB is transferable (like NRB), or forget to claim it. Critical: RNRB only applies if main home passes to "direct descendants" (children, grandchildren, step-children, adopted children, foster children). Not siblings, nieces, nephews, friends. If no direct descendants, RNRB is £0. Real UK example (2025/26): Peter dies 2018, estate £300,000 (main home £250,000) left to wife Anne. Peter's NRB £325,000 unused (100%). Peter's RNRB £175,000 unused (100% - even though not used, it's transferable!). Anne dies 2025, estate £700,000 (main home £400,000 passes to 2 children, other assets £300,000). Solicitor completes probate forms. Solicitor forgets to claim Peter's transferred RNRB on form IHT402! Anne's allowances claimed: NRB £325,000 (Anne's) + £325,000 (Peter's transferred) = £650,000. RNRB £175,000 (Anne's only). Total: £825,000. Taxable: £700,000 - £825,000 = £0. IHT: £0 (estate within allowances). Correct calculation (if claimed Peter's RNRB): Allowances: NRB £650,000 + RNRB £175,000 (Anne's) + £175,000 (Peter's transferred) = £1,000,000. But estate only £700,000, so still £0 IHT. Wait, this example shows no loss? Let's increase Anne's estate to £900,000. Without Peter's RNRB: Allowances: £825,000. Taxable: £900,000 - £825,000 = £75,000. IHT: £75,000 × 40% = £30,000. With Peter's RNRB: Allowances: £1,000,000. Taxable: £900,000 - £1,000,000 = £0. IHT: £0. Lost by not claiming: £30,000! For £1.2 million estate: Lost £80,000. For £1.4 million estate: Lost £130,000!
The mistake: Making a gift but continuing to benefit from the asset. Examples: Gift house to children but continue living there rent-free, gift valuable painting to son but keep it hanging in your home, gift holiday home to daughter but still use it whenever you want. HMRC treats these as "gifts with reservation of benefit" (GROB). Result: Gift fails for IHT purposes. Asset still counts as part of your estate on death (even though legally owned by recipient!). You get double-taxed (gift counted in estate + potentially a PET if you die within 7 years). Real UK example (2025/26): Susan, 70, owns £600,000 house. Worried about IHT, gifts house to son Mark (deed transferred, Mark legally owns it). Susan continues living in house rent-free (thinks "it's fine, family arrangement"). Susan dies age 78 (8 years after gift). Susan thinks: House gifted 8 years ago, outside 7-year PET rule, not in estate! Estate £400,000 (cash/investments). Uses £500,000 NRB+RNRB. IHT: £0. HMRC's view: Gift is GROB (reservation of benefit - Susan lived there rent-free). House £600,000 STILL IN ESTATE despite gift! Estate: £400,000 + £600,000 house = £1,000,000. Allowances: £500,000. Taxable: £500,000. IHT: £500,000 × 40% = £200,000. Mark must pay £200,000 IHT on house he already legally owns! How to avoid: (1) Pay market rent to Mark for living there (proves no benefit), OR (2) Move out completely after gift (can visit, but not live there or have a key, etc.). Alternative strategy: "Gift with reservation" exception = gift share of house to Mark, you both own it, you pay half the bills. Not a GROB because you're paying for your share. But only works if you gift less than 100%.
The mistake: Not making £3,000 annual exempt gifts every year. Many people think "I'll do IHT planning when I'm older" but miss decades of £3,000/year exemptions that CANNOT be reclaimed. Can only carry forward 1 unused year (not multiple years). Real UK example (2025/26): Brian, 60, estate £1,200,000. Thinks "I'm only 60, I'll do IHT planning at 70." Brian doesn't gift anything ages 60-70 (10 years). Age 70 Brian reads about £3,000 exemption, wants to use it. Brian's thinking: "I'll gift £30,000 to use last 10 years of £3,000 exemptions (10 × £3,000)." HMRC's reality: Can ONLY carry forward 1 year! Brian can gift: 2025/26 exemption: £3,000. 2023/24 unused: £3,000. Total: £6,000 maximum (not £30,000!). Lost: 8 years × £3,000 = £24,000 lost exemptions (gone forever!). If Brian used exemptions properly: Age 60-70 = 10 years. Total gifts: 10 × £3,000 = £30,000 removed from estate IHT-free. IHT saved: £30,000 × 40% = £12,000. Plus growth: £30,000 invested by children over 10 years = £45,000. Growth £15,000 outside Brian's estate. Extra saving: £15,000 × 40% = £6,000. Total opportunity lost: £12,000 + £6,000 = £18,000! Over 30 years (age 60-90): Missed exemptions: 30 × £3,000 = £90,000. IHT lost: £90,000 × 40% = £36,000. With growth (doubling over 30 years): £90,000 → £180,000 in children's hands. Extra saving: £90,000 × 40% = £36,000. Total lost by not using: £36,000 + £36,000 = £72,000!
The mistake: Making regular gifts from surplus income (IHT-free, unlimited!) but not documenting them properly. When you die, executor must PROVE to HMRC gifts were from income (not capital) on form IHT403. Without records, HMRC treats gifts as PETs (only exempt if 7+ years). Records needed: (1) Annual income received (payslips, pension statements, rental income, dividends), (2) Annual normal expenditure (bills, living costs), (3) Surplus available after living costs, (4) Gifts made (dates, amounts, recipients, bank statements). Real UK example (2025/26): Tom receives £60,000/year pension. Living costs £35,000/year. Surplus £25,000/year. Tom gifts £20,000/year to children (regular pattern, 8 years before death, total £160,000 gifted). Tom dies. Executor finds no records of income/expenditure! Executor completes form IHT403 (gifts from income): Section asks "What was deceased's annual income?" - Unknown (no records). "What was deceased's normal expenditure?" - Unknown. "What surplus was available?" - Unknown. HMRC's response: Cannot verify gifts were from income (not capital). Treat £160,000 as PETs. Gifts made 0-7 years before death = last 7 years × £20,000 = £140,000 potentially taxable. Annual exemptions: 7 × £3,000 = £21,000. Taxable PETs: £140,000 - £21,000 = £119,000. Plus estate £800,000. Total: £919,000. Allowances £500,000. Taxable: £419,000. IHT: £419,000 × 40% = £167,600. If Tom had kept records proving gifts from income: All £160,000 gifts EXEMPT (normal expenditure out of income). Estate £800,000. Allowances £500,000. Taxable: £300,000. IHT: £300,000 × 40% = £120,000. Extra IHT due to missing records: £167,600 - £120,000 = £47,600! How to keep records: Simple spreadsheet (Excel/Google Sheets) with columns: Tax Year, Total Income, Normal Expenditure, Surplus, Gifts Made (date, recipient, amount). Update annually. Keep for life + 7 years after death. Takes 30 minutes/year, saves £10,000-£100,000+!
The mistake: Not realizing Residence Nil Rate Band (RNRB) £175,000 is WITHDRAWN if estate exceeds £2 million. Taper: Lose £1 of RNRB for every £2 estate exceeds £2 million. Fully withdrawn at £2.35 million (£2m + £350,000 = £2.35m for single person, £2m + £700,000 = £2.7m for couple with transferred allowances). Cliff edge: Estate £1,999,999 = full £175,000 RNRB. Estate £2,000,000 = start losing RNRB. Estate £2,350,000+ = £0 RNRB (even if main home passes to children!). Real UK example (2025/26): Helen dies, estate £2,100,000 (main home £600,000 to children, other assets £1,500,000). Husband died years ago (transferred NRB £325,000 + RNRB £175,000). Helen's allowances calculation: NRB: £325,000 (Helen's) + £325,000 (husband's) = £650,000. RNRB: Estate £2,100,000 exceeds £2 million by £100,000. RNRB reduction: £100,000 ÷ 2 = £50,000 lost. Helen's RNRB: £175,000 - £50,000 = £125,000. Husband's transferred RNRB: £175,000 - £50,000 = £125,000. Total RNRB: £125,000 + £125,000 = £250,000 (not £350,000 full!). Total allowances: £650,000 + £250,000 = £900,000. Taxable: £2,100,000 - £900,000 = £1,200,000. IHT: £1,200,000 × 40% = £480,000. If Helen's estate was £2,000,000 exactly (£100,000 less): RNRB: Full £175,000 × 2 = £350,000. Total allowances: £650,000 + £350,000 = £1,000,000. Taxable: £2,000,000 - £1,000,000 = £1,000,000. IHT: £1,000,000 × 40% = £400,000. Extra IHT on £100,000: £480,000 - £400,000 = £80,000. Marginal rate: £80,000 ÷ £100,000 = 80% effective rate! (40% on £100,000 = £40,000, plus £50,000 RNRB lost × 40% = £20,000 × 2 people = £40,000. Total £80,000). How to avoid: If estate close to £2 million, make lifetime gifts to reduce below threshold (use annual exemptions, PETs, gifts from income, spend/enjoy it!).
The mistake: Owning property as "joint tenants" (default for married couples) instead of "tenants in common" when IHT planning needed. Joint tenants: When one dies, their share automatically passes to survivor (can't leave to anyone else in will). Tenants in common: Each owns distinct share (e.g. 50/50), can leave share to whoever in will. Problem with joint tenants for IHT: Can't use deceased's NRB on first death (all to spouse automatically). Wastes opportunity to use NRB efficiently. Real UK example (2025/26): Mike & Lisa, married, own £800,000 house as joint tenants (default). Mike dies, house automatically to Lisa (spouse exemption, £0 IHT). Lisa now owns £800,000 house + £400,000 other assets = £1,200,000 estate. Lisa dies. Estate £1,200,000. Allowances: NRB £650,000 (both), RNRB £350,000 (both). Total: £1,000,000. Taxable: £200,000. IHT: £200,000 × 40% = £80,000. If owned as tenants in common + better planning: Change to tenants in common (50% each). Mike's will: Leave 50% house (£400,000) to children in trust (discretionary trust, Lisa can live there). Use Mike's NRB £325,000 + RNRB £175,000 = £500,000. Mike's 50% house £400,000 uses £400,000 of allowances. IHT on Mike's death: £0 (within allowances). Lisa owns 50% house (£400,000) + has life interest in Mike's 50%. Lisa's estate: £400,000 (her house share) + £400,000 other assets = £800,000. Lisa dies. Estate £800,000. Allowances: Lisa's NRB £325,000 + RNRB £175,000 = £500,000. Mike's transferred: £100,000 NRB unused (he used £400,000 of £500,000). Total: £600,000. Taxable: £800,000 - £600,000 = £200,000. IHT: £200,000 × 40% = £80,000. Same £80,000 IHT? Yes, but children received Mike's £400,000 house share 15 years earlier! That £400,000 grew to £700,000 outside Lisa's estate. Actual saving: £300,000 growth × 40% = £120,000! Plus children had use of asset for 15 years. Critical: Tenants in common + trust planning ONLY works if done properly with solicitor. DIY can cause major problems (Lisa losing home, trust tax issues). Costs £1,500-£3,000 legal fees, saves £10,000-£120,000+.
The mistake: Making will once and never updating it despite major life changes: Marriage (CANCELS previous will!), divorce (ex-spouse provisions invalid), children born, beneficiary dies, house value increases significantly, moving to/from Scotland (different IHT rules), changes in IHT law (NRB frozen, RNRB introduced 2017). Result: Will doesn't reflect intentions, misses IHT planning opportunities, causes family disputes, outdated tax planning (e.g., pre-2017 wills don't mention RNRB). Real UK example (2025/26): George makes will 2010: "Leave everything to wife Sandra. If Sandra predeceased, 50% to son Paul, 50% to daughter Emma." Estate 2010: £400,000 (house £250,000). Estate 2024: £1,200,000 (house £700,000, appreciation over 14 years). Sandra dies 2015 (George inherits her £300,000, now £1,500,000 total). George doesn't update will (still 2010 version). George dies 2024. Problems: (1) Will doesn't use new RNRB (introduced 2017) - no mention of leaving main home to "direct descendants" for RNRB. (2) Will doesn't consider £2 million RNRB taper (estate £1,500,000 now, was £400,000 when will made). (3) Will doesn't have 10% charity gift for 36% reduced rate. (4) Will doesn't consider Paul's divorce 2018 (Paul's ex-wife could claim share of inheritance). IHT with outdated 2010 will: Estate £1,500,000. Allowances: NRB £325,000 (George's) + £325,000 (Sandra's transferred) = £650,000. RNRB: £0 (will doesn't specify house to children, goes to "residuary estate" - RNRB lost!). Taxable: £1,500,000 - £650,000 = £850,000. IHT: £850,000 × 40% = £340,000. IHT with updated 2024 will (proper planning): Will updated 2024: "Leave main home £700,000 to Paul & Emma (direct descendants, qualifies for RNRB). Leave 10% net estate to Cancer Research UK (get 36% rate). Residue to Paul & Emma." Estate £1,500,000. NRB: £650,000. RNRB: £175,000 × 2 = £350,000 (house to children qualifies!). Total: £1,000,000. Net estate: £1,500,000 - £1,000,000 = £500,000. 10% charity: £50,000. Taxable: £450,000. IHT at 36% (charity rate): £450,000 × 36% = £162,000. Tax saved: £340,000 - £162,000 = £178,000! Cost to update will: £300-£500. ROI: £178,000 ÷ £500 = 356x return!
Essential UK government resources and official guidance for inheritance tax planning, probate, and estate administration. All links verified January 2025 and lead directly to authoritative HMRC and GOV.UK sources.
Official HMRC comprehensive guide to Inheritance Tax covering all aspects of IHT. Topics: What IHT is and when it applies (estates over £325,000, death within 7 years of gifts), 2025/26 rates (40% standard, 36% if 10%+ to charity), thresholds (Nil Rate Band £325,000, Residence Nil Rate Band £175,000), how to value estate (property, shares, business assets, debts), exemptions (spouse, charity, £3,000 annual, small gifts £250), reliefs (Business Property Relief 50-100%, Agricultural Property Relief), 7-year gift rule (Potentially Exempt Transfers), reporting requirements, paying IHT (due 6 months after death, interest charges if late), claiming back overpaid IHT. Includes links to forms IHT400, IHT402, IHT403, calculators, and probate guidance. Essential starting point for all IHT questions. Updated regularly with latest regulations and Finance Act changes.
Complete collection of official HMRC Inheritance Tax forms required for probate and estate administration. Key forms: IHT400 (full account for taxable estates, 31 pages, required if estate over £325,000 or certain gifts made), IHT205 (short form for excepted estates under threshold, no IHT due), IHT402 (claim transferable nil rate band from deceased spouse, CRITICAL - don't forget this!), IHT403 (gifts from income, prove regular gifts exempt), IHT407 (household and personal goods valuation), IHT411 (listed shares and investments), IHT413 (business property relief claim, 100% relief on qualifying businesses/AIM shares held 2+ years). Also includes: IHT estate valuation worksheets (calculate total estate value), IHT calculators (work out tax due), payment options (pay from estate, pay in instalments for property/business, direct payment scheme for banks). Downloadable PDFs with instructions. Forms updated April 2024 for 2025/26 tax year.
Official guidance on UK probate process (grant of representation to administer estate). Topics: When probate is needed (estates over £5,000-£50,000 depending on institution, property in deceased's sole name, shares/investments), who can apply (executor named in will, or administrator if no will/"intestacy"), how to apply online (faster, 10-14 days) or by post (6-8 weeks), documents needed (original will, death certificate, IHT forms IHT400/IHT205), costs (£300 probate fee for estates over £5,000, extra copies £1.50 each for banks, free if estate under £5,000), valuing the estate (property, bank accounts, debts, gifts in last 7 years), paying IHT before probate (HMRC requires IHT paid within 6 months of death, probate registry won't issue grant until IHT reference number provided), what to do after probate granted (collect assets, pay debts/IHT, distribute to beneficiaries, keep accounts for 12 years). Includes England & Wales probate (Probate Registry), Scotland (Confirmation from Sheriff Court), Northern Ireland (separate process). Links to online probate application service, fee calculator, probate helpline 0300 123 1072.
Official HMRC guidance on using trusts for inheritance tax planning and asset protection. Topics: What trusts are (legal arrangement where assets held by trustees for beneficiaries), types of trusts (bare trust, interest in possession, discretionary trust, settlor-interested trust), IHT treatment of trusts (lifetime transfers to trust = chargeable lifetime transfer, immediate 20% IHT if over NRB, 10-yearly periodic charges on discretionary trusts, exit charges when assets leave trust), when trusts are useful (protecting assets for children under 18, controlling when beneficiaries receive inheritance, vulnerable beneficiary trusts for disabled, care home fee protection - must be done 7+ years before care, family business succession), trust registration (Trust Registration Service, must register most trusts by 1 September following tax year of creation, penalties £100+ for non-registration), trust tax returns (SA900 form, due 31 January annually), trustees' responsibilities (duty of care, investment decisions, record-keeping, filing returns). Warns: Trusts are complex, professional advice essential (£2,000-£5,000 setup, £500-£1,500/year admin, but can save £50,000-£500,000 IHT). Don't use trust DIY kits for IHT planning - high risk of errors causing tax disasters.
Independent charity providing free, impartial advice on Inheritance Tax and probate in plain English (easier to understand than HMRC technical guidance). Topics: Do I need to pay IHT? (simple flowchart based on estate value, exemptions), how to work out estate value (step-by-step with examples, common mistakes to avoid when valuing property/shares), IHT reliefs and exemptions explained (spouse exemption, 7-year gift rule with taper relief examples, £3,000 annual exemption, small gifts, wedding gifts, Business Property Relief, Agricultural Property Relief), paying IHT (when to pay, 6-month deadline, instalments option for property, what happens if can't pay), getting professional help (when to use solicitor vs DIY, costs £1,500-£5,000 for complex estates, free/low-cost advice options). Also covers: Dealing with someone's estate when they die (executor duties, probate process, distributing assets), intestacy rules (who inherits when no will, spouse gets first £322,000 + 50% residue, children get other 50%), challenging a will (grounds, deadlines, costs). Includes: Links to local Citizens Advice offices (face-to-face appointments, phone advice), factsheets and template letters, case studies with realistic UK family scenarios. Free, impartial, no conflicts of interest (unlike paid solicitors). Available in Welsh, accessible formats.
Official HMRC telephone helpline for Inheritance Tax and probate enquiries. Phone: 0300 123 1072 (Monday-Friday 9am-5pm, closed bank holidays, calls charged at local rate, same cost from mobiles and landlines). Overseas: +44 300 123 1072. Welsh language service: 0300 200 1900. What they help with: IHT forms (which forms needed for your situation, help completing IHT400/IHT402/IHT205), valuing estate (guidance on property valuation, shares, business assets, what debts can be deducted), exemptions and reliefs (do you qualify for spouse exemption, RNRB, BPR, APR, taper relief), paying IHT (payment reference number, instalments, direct payment scheme with banks), transferable nil rate band claims (form IHT402 help, calculating unused percentage), gifts and PETs (reporting gifts made in last 7 years, working out if taxable). What they DON'T help with: Legal advice (e.g., "should I contest this will?"), financial planning advice ("how should I structure my estate?"), form-filling service (they guide, you complete). Wait times: 10-30 minutes typical (longest March-May probate busy season). Alternative: HMRC webchat service (online chat, Monday-Friday 8am-6pm, faster for simple questions). Prepare before calling: Have deceased's details ready (name, DOB, date of death, National Insurance number), estate summary (rough asset values), specific question written down. Free service, no charge for call beyond normal phone rates.
Created by UK financial experts specializing in inheritance tax planning and estate optimization. This calculator uses official HMRC 2025/26 IHT rates, allowances, and regulations.
Updated: 23 January 2025 | Tax Year: 2025/26 | Regulations: Finance Act 2024
Sources: HMRC IHT guidance, GOV.UK official publications, Inheritance Tax Act 1984 (as amended)
This calculator provides estimates only. IHT rules are complex with many reliefs, exemptions, and special cases. For estates over £500,000, complex asset structures, or business/agricultural property, consult a qualified IHT solicitor or tax adviser. Professional advice typically costs £1,500-£5,000 but can save £10,000-£400,000+ in IHT.
Accuracy: While we strive for accuracy using official HMRC sources, this calculator does not constitute professional tax or legal advice. Always verify calculations with HMRC or a qualified professional before making decisions.
✓ Expert Reviewed — This calculator is reviewed by our team of financial experts and updated regularly with the latest UK tax rates and regulations. Last verified: January 2026.