How inheritance tax is worked out
Inheritance tax is charged at 40% on the value of an estate above the tax-free bands. Every estate has a £325,000 nil-rate band. On top of that sits a £175,000 residence nil-rate band, available when a main home passes to children or grandchildren, so a single person passing a home to their children can leave £500,000 tax-free. The residence band tapers away by £1 for every £2 the estate exceeds £2,000,000, disappearing once the estate reaches £2,350,000. Leave 10% or more of the net estate to charity and the rate on the taxable part drops to 36%.
Spouses, civil partners and the £1,000,000 figure
Anything left to a spouse or civil partner is exempt, so there is no inheritance tax on the first death. The survivor also inherits the unused percentage of both the nil-rate band and the residence band. That is where the widely quoted £1,000,000 comes from: two £325,000 nil-rate bands plus two £175,000 residence bands, passing a home to children. This calculator models the common full-transfer case. Partial transfers are possible where the first spouse used part of their bands, and gifts, trusts and business relief can change the picture further, so treat this as an estate-planning estimate and get professional advice for anything close to the threshold.
Lifetime gifts and the 7-year rule
This calculator models the estate at death, not lifetime gifts. In practice, gifts you make can reduce inheritance tax. Most gifts to other people are potentially exempt transfers: live for seven years after making the gift and it leaves your estate entirely. Die within seven years and the gift is counted back against your estate, though taper relief can reduce the tax on the part of a gift that sits above the £325,000 nil-rate band. Taper relief does not cut the tax on a gift that already falls within the band. On top of that, you can give away £3,000 each tax year under the annual exemption, plus small gifts and regular gifts out of income, with no seven-year clock. Gifts, trusts and business relief change the position, so use the figure here as the estate-at-death estimate and get advice before relying on a gifting plan.
Frequently asked questions
How much inheritance tax will I pay?
You pay 40% on the part of the estate above your tax-free bands. Everyone gets a £325,000 nil-rate band, plus a £175,000 residence nil-rate band when a main home passes to children or grandchildren. So a £600,000 estate leaving a home to children has £500,000 tax-free and pays 40% on the remaining £100,000, which is £40,000.
How much inheritance tax is due when the second parent dies?
Often less than people expect, because the second parent usually inherits the first parent's unused bands. When the first parent leaves everything to the survivor, that transfer is exempt, and the survivor's estate can then use two £325,000 nil-rate bands plus two £175,000 residence bands when a home passes to children. So a £1,000,000 estate with a home to children can pass with no inheritance tax at all. Set your situation to widowed to model this.
How much inheritance tax will I pay on £1 million?
It depends on your bands. A married or widowed person leaving a £1,000,000 estate with a home to children can often pay nothing, because two £325,000 nil-rate bands and two £175,000 residence bands cover the full £1,000,000. A single person leaving £1,000,000 with a home to children has £500,000 of bands, so £500,000 is taxed at 40%, which is £200,000.
What is the most you can inherit tax-free?
A single person can pass £500,000 tax-free: the £325,000 nil-rate band plus the £175,000 residence band when a home goes to children or grandchildren. A married couple or widowed person can pass up to £1,000,000 by combining both partners' bands. Anything left to a spouse, civil partner or UK charity is exempt on top of these bands.
Do beneficiaries pay tax on inherited money?
Usually no. Inheritance tax is paid by the estate before anything is shared out, so beneficiaries receive their inheritance with no further inheritance tax to pay. You may owe other tax later, for example income tax on interest a cash gift earns, or capital gains tax if you sell an inherited asset that has risen in value. The money left to you is not treated as income.
How can I reduce the 40% inheritance tax?
Several routes lower the bill. Leaving everything to a spouse or civil partner is exempt and passes their unused bands to the survivor. Leaving 10% or more of the net estate to charity cuts the rate on the taxable part from 40% to 36%, and the charitable gift itself is exempt. Passing a home to children or grandchildren unlocks the £175,000 residence band. Lifetime gifts can also fall out of the estate if you live seven years after making them. This is general information, not advice.
What is the nil-rate band for 2026/27?
The nil-rate band is £325,000 and the residence nil-rate band is £175,000. Both are frozen until 5 April 2031, so more estates drift into inheritance tax as asset values rise.
This tool is a guide, not tax or financial advice.
