Inheritance Tax

An estate is taxed on whatever is left after the nil rate band, plus a residence band where a home passes to direct descendants, plus anything a late spouse did not use.

⚠ Gifts eat the nil rate band before the estate does

Chargeable gifts made in the seven years before death use the band first, in date order. So a gift that looked free at the time can push £100,000 of the estate into the taxable part — and the tax lands on the people inheriting rather than on the person who received the gift.

That is why a gift and an estate cannot be worked out separately. The gifts calculator covers the other side of it.

⚠ A transferred band is a percentage of today's figure

What passes from a late spouse is the unused proportion of their band, not the cash amount. So an estate whose first death used none of it gets a full extra band at today's value — which can be several times what the band was worth at the time.

⚠ The 10% charity test is against the estate after the bands

Not against the whole estate. Testing it against the gross figure is the usual mistake, and it is expensive in both directions: it tells some people they have missed the reduced rate when they have not, and others that they have qualified when they have not. The difference is four percentage points on everything taxable.

The reduced rate can mean leaving more to charity costs the estate almost nothing — the tax saved on the rest offsets most of the legacy. This page shows exactly how much more would be needed.

The residence band tapers away

It is capped at the home's value, and it is reduced by £1 for every £2 the estate is worth above the taper threshold — so a large estate loses it entirely. The residence band taper calculator works through that on its own.

What this does not cover

Anything left to a spouse or civil partner, which is exempt without limit and is the reason most estates pay nothing on a first death. Business and agricultural property relief. Trusts, and the ten-year charge. Downsizing relief, where a home was sold before death. Quick succession relief. Estates of people domiciled outside the UK. Instalment payments on property and businesses. And whether the residence band's "direct descendant" test is met, which is narrower than most people assume.

Where these figures come from

Every figure above is read from a dated rate file rather than written into the page, and each one is checked against the gov.uk page it came from. How these numbers are kept right sets out the whole process.

Gifts calculator