How inheritance tax works

Everyone has a nil-rate band of £325,000. If your home (or a share of it) goes to your children or grandchildren, you also get a residence nil-rate band of up to £175,000, making £500,000.

Married couples and civil partners can pass any unused allowance to the survivor, so together they can leave up to £1 million before tax is due. Above the allowances, tax is 40%.

Children (including adopted, foster and stepchildren), their spouses or civil partners, and grandchildren and further descendants. Nieces, nephews, siblings and friends do not qualify. The allowance is limited to the value of the home you leave them.

The residence nil-rate band falls by £1 for every £2 the estate is worth above £2 million, so a single person's £175,000 is gone at £2.35 million. The test uses the estate before business and agricultural relief, and from April 2027 it includes pensions.

No. Anything left to a spouse or civil partner who lives in the UK is exempt. The tax usually falls on the second death, when both sets of allowances can be used.

• £3,000 a year in total (you can carry forward last year's if you did not use it).
• Gifts of up to £250 to as many different people as you like (not to someone who also got part of your £3,000).
• Wedding or civil partnership gifts: £5,000 to a child, £2,500 to a grandchild, £1,000 to anyone else.
• Regular gifts from surplus income that do not reduce your standard of living, with no limit. Keep records.
• Gifts to a spouse or civil partner, charities and political parties.

Other gifts to people are free of inheritance tax if you live for 7 years after making them. If you die sooner, they count towards your estate and use up your nil-rate band first.

If your gifts add up to more than the nil-rate band, tax is due on the excess, reduced by taper relief if you lived at least 3 years: 20% off for 3 to 4 years, 40% for 4 to 5, 60% for 5 to 6 and 80% for 6 to 7. The person who got the gift pays it.

A gift where you keep a benefit, such as giving your home away but still living in it rent free, does not count as a gift for inheritance tax.

For deaths from 6 April 2027, most unused pension funds and death benefits count as part of your estate. That includes money left in a defined contribution pot and lump sum death benefits. Death-in-service benefits, dependants' scheme pensions and lump sums left to charity are excluded.

Pensions left to a spouse or civil partner remain exempt, as with other assets.

If you die after 75, whoever inherits your pension pays income tax at their own rate when they draw it, on top of any inheritance tax on the estate. Before 75, inherited pensions are generally free of income tax up to the lump sum limits.

Qualifying business assets and agricultural property get 100% relief on the first £2.5 million and 50% relief above that. Any unused part of the £2.5 million allowance can pass to a surviving spouse or civil partner. Shares listed on AIM and similar markets get 50% relief and do not use the allowance.

The assets must have been owned for at least two years and meet other conditions, so take advice.

Gifts to charity in your will are free of inheritance tax. If they are at least 10% of your "baseline" estate (roughly the estate after reliefs and the nil-rate band), the rest of the estate is taxed at 36% instead of 40%. The calculator shows how much that would take and how it changes what your beneficiaries get.

No. It is an estimate using the published rules, with simplifications: it does not cover trusts, gifts with reservation, foreign assets, quick succession relief or the detailed conditions for business and agricultural relief. Inheritance tax planning needs advice from a solicitor or regulated adviser, and a will.

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