UK Inheritance Tax Calculator

Every estate has a nil-rate band of £325,000, taxed at 0%. Above it, the standard rate is 40%.

A second allowance, the residence nil-rate band, adds up to £175,000 — but only where a home passes to direct descendants: children, stepchildren, adopted or foster children, grandchildren and their spouses. Leaving the house to a sibling, a nephew or a friend gives none of it. It is also capped at the value of the home itself, so a modest property unlocks only its own value.

Where a spouse or civil partner died first without using their allowances, the survivor inherits the unused percentage. Both bands can double, giving a combined £1,000,000 — the figure usually quoted as "the million-pound allowance". It applies only to couples, and only where a qualifying home passes to descendants.

Once an estate exceeds £2 million, the residence nil-rate band tapers away at £1 for every £2 above the threshold. It is fully gone by about £2.35 million for a single person.

Inside that range the effective marginal rate is 60%, not 40%. Each additional £1 of estate is taxed at 40p and simultaneously destroys 50p of allowance, which would itself have saved 20p of tax. The result is 60p of tax on the marginal pound — one of the sharpest effective rates in the UK system, and it appears in no rate table.

This is why estates near £2 million respond so strongly to lifetime giving and to charitable legacies. Bringing the estate back below the threshold restores the whole residence band, and the saving is worth far more than the amount given away.

Leaving at least 10% of the estate to charity reduces the rate on the whole taxable estate from 40% to 36%. Gifts to charity are also exempt in their own right, so they reduce the taxable estate as well.

The 10% is measured against the "baseline amount" — broadly the estate after deducting available allowances but before deducting the charitable gift itself. That distinction matters: testing against the raw estate value would require a much larger gift.

Because the reduced rate applies to the entire taxable estate rather than only the portion given, there is a range where giving more to charity leaves heirs with *more* than giving nothing. Just below the 10% point, increasing the gift to reach it can improve the position for everyone except HMRC.

The nil-rate band has been £325,000 since 2009. The residence band has been £175,000 since 2020. Both, and the £2 million taper threshold, are frozen until the end of 2030-31.

A frozen threshold is a tax rise that nobody has to announce. House prices and asset values rise; the allowance does not; so a steadily larger share of estates crosses into charge each year, and estates already in charge pay on a larger slice. This is often called fiscal drag, and over a twenty-year freeze its effect is far larger than most rate changes.

It also means planning assumptions age badly in one direction only. An estate comfortably under the threshold today can be well over it in a decade without anything being bought or sold.