An inheritance tax calculation has only four moving parts, and a calculator that asks for more than that is asking for things that do not change the answer. You need the value of the estate, the thresholds it carries, whatever is exempt, and the rate. The reason so many people arrive at different figures for the same estate is not arithmetic. It is that the thresholds are conditional and the exemptions are easy to miss.
How to work out inheritance tax: the four numbers, in order
First, the value of the estate: money, property and possessions, less debts. Second, the thresholds it carries, which is the £325,000 nil rate band, plus any unused band transferred from a spouse or civil partner who died first, plus the £175,000 residence nil rate band where a home is passing to children or grandchildren. Third, anything exempt, principally what passes to a surviving spouse, a civil partner or a qualifying charity. Fourth, the rate: 40% on what is left.
An IHT calculation worked in HMRC's own figures
GOV.UK's published example is the clearest test of whether a calculator is doing this correctly. An estate worth £500,000 with a tax-free threshold of £325,000 is charged inheritance tax at 40% of £175,000, the difference between the two. Nothing is charged on the first £325,000, and the rate is not applied to the whole estate. A calculator that returns 40% of £500,000 has made the commonest mistake there is.
What moves the answer more than the estate's value does
The transferable band is the largest single lever, because it can double the threshold on a second death. The residence band is the second, and it carries its own condition that the estate be worth less than £2 million. The third is the charity rate: where 10% or more of the net value is left to charity, some assets are charged at 36% rather than 40%. All three are claimed rather than granted.
What a calculator cannot tell you
It cannot value a house, decide whether a lifetime gift falls back into the estate, apply business or agricultural relief to a trading company or a farm, or decide whether the residence band survives a particular will. Those are readings of a specific estate against the rules, and they are the reason a large estate is worth paying somebody to compute rather than estimating from a form.
Questions people ask about calculate inheritance tax UK
Is inheritance tax charged on the whole estate?
No. GOV.UK states that the 40% rate is charged only on the part of the estate above the threshold. Its own example takes a £500,000 estate with a £325,000 threshold and charges 40% of the £175,000 difference, which is the whole of the difference between a correct calculation and an alarming one.
What is the threshold this year?
The nil rate band is £325,000, and HMRC's published table runs that figure from 6 April 2009 to 5 April 2031. The residence nil rate band is a further £175,000 for deaths from 6 April 2020 to 5 April 2030, available where a home passes to children or grandchildren and the estate is worth less than £2 million.
Why do two calculators give different answers for the same estate?
Usually because one of them has assumed a transferred threshold and the other has not, or because one applies the residence band without checking the £2 million condition. Both are conditional on facts a calculator cannot see, which is why the figure a form returns is a starting point rather than a liability.
Does this page work out my estate's bill?
No. It sets out the published thresholds and the published rate with the source for each, so you can follow the arithmetic. Whether a relief applies to your estate is a reading of your facts, and an enquiry from here goes to the accountant or solicitor who does that.
What can a how much inheritance tax will I pay calculator not see?
The three things that move the answer more than the value of the estate does, because all three are claimed rather than granted: an unused nil rate band transferred from a spouse or civil partner who died first, which can double the threshold on a second death; the residence nil rate band, which carries its own condition that the estate be worth less than 2 million pounds; and the 36% charity rate where 10% or more of the net value is left to charity. It also cannot value a house, decide whether a lifetime gift falls back into the estate, or apply business or agricultural relief.