UK Inheritance Tax Calculator
Unlock Control Over Your Legacy Use Our Free UK Inheritance Tax Calculator to Estimate Your Bill and Make Informed Decisions
Inheritance Tax (IHT) can seem complicated, but understanding your potential liability is the first step towards protecting the wealth you plan to pass on. Many people in the UK are surprised to find their estate could be subject to this 40% tax, especially with rising property prices.
Our free Inheritance Tax Calculator is designed to give you a clear, simple estimate of your estate's potential IHT bill. By understanding the numbers, you can take control, make informed decisions, and ensure more of your hard-earned assets go to your loved ones.
What is Inheritance Tax (IHT)?
Inheritance Tax is a tax on the 'estate' of someone who has died. Your estate is simply everything you own, minus anything you owe.
- What you own: This includes your property, savings, investments, and valuable possessions like cars or jewellery.
- What you owe: This includes any outstanding debts, like a mortgage or loans.
If the total value of your estate is above a certain threshold, a 40% tax is usually charged on the amount over that limit.
How to Use Our Inheritance Tax Calculator
Our calculator is designed to be quick and easy to use. You just need to provide a few key figures to get an instant estimate.
Step 1: Enter Your Assets Tell us the total value of everything you own. This includes:
- Property: The current market value of your home(s).
- Money: Cash in bank accounts, ISAs, and other savings.
- Investments: The value of any stocks, shares, or funds.
- Possessions: The value of cars, jewellery, art, and other personal items.
- Payouts from life insurance policies (unless they are written 'in trust').
Step 2: Enter Your Debts Input the total value of anything you owe. This includes:
- Mortgages
- Credit card balances
- Personal loans
- Household bills
Step 3: Provide Key Details Answer a few simple questions:
- Marital Status: Are you single, married/in a civil partnership, or widowed? This is important because spouses and civil partners can pass their entire estate to each other tax-free and transfer any unused tax-free allowance.
- Main Home: Are you leaving your main home to your children or grandchildren? This could qualify your estate for an extra tax-free allowance.
- Gifts: Have you given away any large gifts of money or assets in the last 7 years? These may still be counted as part of your estate.
Your Result: The Inheritance Tax Calculator will instantly show you:
- Your Estimated Inheritance Tax Bill: A clear figure of the potential tax due.
- A Breakdown of Your Allowances: See how the tax-free thresholds (the Nil-Rate Band and Residence Nil-Rate Band) have been applied to your estate.
Understanding the IHT Thresholds
The key to understanding IHT is knowing the tax-free allowances set by the government.
| Allowance Type | Current Amount (2024/25) | What it is |
|---|---|---|
| Nil-Rate Band (NRB) | £325,000 | Everyone gets this standard tax-free allowance. You can leave up to this amount without any IHT being due. |
| Residence Nil-Rate Band (RNRB) | £175,000 | An extra allowance if you pass your main home to your children, stepchildren, or grandchildren. |
Important Note for Couples: Spouses and civil partners can transfer any unused allowance to one another. This means a married couple could potentially pass on up to £1 million completely tax-free (£325k + £175k, doubled).
A Worked Example
Let's look at how IHT is calculated for a single person named Alex.
- Total Estate Value: £700,000 (including a main home worth £400,000)
- Debts: £0
- Alex leaves everything to his daughter.
Here is the calculation:
| Item | Calculation | Amount |
|---|---|---|
| Total Estate Value | £700,000 | |
| Less Nil-Rate Band (NRB) | -£325,000 | |
| Less Residence Nil-Rate Band (RNRB) | (As home is left to a child) | -£175,000 |
| Remaining Estate Subject to Tax | £200,000 | |
| Inheritance Tax Due | £200,000 x 40% | £80,000 |
In this example, Alex's daughter would face an £80,000 tax bill before she could fully inherit the estate. Using our Inheritance Tax Calculator can help you see what your own figures might look like.
What to Do After You Get Your Result
Your calculator result is a powerful piece of information. Here's what to do next.
If your estimated bill is £0: This is great news! It likely means your estate falls within the available tax-free allowances. However, you should still ensure you have an up-to-date Will to make sure your wishes are carried out.
If you have a potential IHT bill: Don't panic. An estimate is not a final bill. It's a prompt to explore your options for managing and potentially reducing it. Some common strategies include:
- Making Gifts: You can give away up to £3,000 each tax year (your 'annual exemption') without it being added to your estate's value. You can also make small gifts of up to £250 to as many people as you like.
- Using Trusts: A trust is a legal arrangement where you can put assets (like cash, property, or investments) to be held for your beneficiaries. When set up correctly, assets in a trust are no longer part of your estate and therefore aren't subject to IHT.
- Taking out Life Insurance: This is one of the simplest and most effective ways to plan for an IHT bill.
Cover Your Inheritance Tax Bill with Life Insurance
Planning for IHT isn't just about reducing the tax; it's also about providing the money to pay it. The tax is due before your beneficiaries can receive their inheritance, which can force them to sell assets, like the family home, just to pay HMRC.
A 'Whole of Life' insurance policy is a popular solution.
- It pays out a guaranteed lump sum when you die.
- If the policy is written 'in trust', the payout is not considered part of your estate.
- This tax-free lump sum can be used directly by your beneficiaries to pay the IHT bill, leaving the rest of your estate intact.
At WeCovr, we are experts in helping UK families find the right protection. We can help you compare life insurance quotes from leading providers to find a policy that meets your needs and budget.
Related Financial Protection
While planning your legacy, it's also wise to consider your own health and wellbeing.
- Private Medical Insurance (PMI): This is a separate consideration from IHT planning. A private medical insurance policy gives you and your family fast access to high-quality medical care should you become unwell. It is designed to cover the cost of treating new, acute conditions that arise after you take out the policy. Crucially, PMI in the UK does not cover pre-existing or chronic conditions.
As a WeCovr customer, you get more than just great cover. If you purchase a PMI or life insurance policy through us, we can often offer discounts on other types of cover. Plus, all our valued customers receive complimentary access to CalorieHero, our AI-powered calorie and nutrition tracking app, to help you stay on top of your health goals.
Common Mistakes to Avoid
- Forgetting About Gifts: Any large gifts made within 7 years of your death may still be counted as part of your estate for tax purposes (this is known as the '7-year rule').
- Not Having a Will: Dying without a Will (known as 'dying intestate') means the law decides who inherits your estate. This can lead to your assets not going to the people you intended and can complicate the IHT process.
- Under-valuing Your Estate: It's easy to forget the value of smaller possessions, but they can all add up. A realistic valuation is essential for accurate planning.
- Ignoring Pensions: Most modern defined contribution pensions are not typically subject to IHT, making them a very tax-efficient way to pass on wealth. Check the rules for your specific scheme.
Frequently Asked Questions (FAQ)
What is the current Inheritance Tax threshold in the UK? For the 2024/25 tax year, the standard tax-free threshold (Nil-Rate Band) is £325,000. You may also be eligible for an additional £175,000 Residence Nil-Rate Band if you pass your main home to your children or grandchildren, bringing the total potential threshold to £500,000 per person.
Can I give my house to my children to avoid IHT? You can, but you must pay market-rate rent to continue living in it. If you give it away but continue to live there for free, it is classed as a 'gift with reservation of benefit' and will still be counted as part of your estate for IHT purposes.
Does my pension count towards my estate for IHT? In most cases, defined contribution pensions fall outside your estate for IHT purposes. This makes them an excellent tool for passing on wealth. However, the rules can be complex, so it's always best to check with your pension provider or a financial adviser.
What happens if I don’t have a valid Will? If you die without a Will, the 'rules of intestacy' apply. These strict legal rules dictate how your estate is distributed, which may not align with your wishes. For example, if you are not married, your long-term partner would not automatically inherit anything.
Take the First Step Today
Knowledge is power. By understanding your potential Inheritance Tax liability, you can start planning effectively to protect your family's future.
Use our simple Inheritance Tax Calculator today for a free, instant estimate.
Once you have your result, contact the friendly experts at WeCovr. We can provide you with a no-obligation quote for a whole-of-life insurance policy to ensure your legacy is protected.
