Take a £600,000 estate where the family home passes to the children. The £325,000 nil-rate band combines with the £175,000 residence nil-rate band to shield £500,000 from tax. That leaves £100,000 taxable, and at the 40 percent rate the Inheritance Tax bill is £40,000, so the heirs receive £560,000. If the deceased was widowed and inherited their late spouse's unused allowances, the combined bands could reach £1,000,000, wiping out the charge entirely on this estate. The residence band starts to taper away once the estate tops £2,000,000, falling by £1 for every £2 above that line.
How it is calculated
The tool adds together the allowances that apply to the estate, then taxes only the value above them. Every estate gets the £325,000 nil-rate band. The £175,000 residence nil-rate band is added on top when a home passes to direct descendants such as children or grandchildren. If you tick the married option, both bands double because a surviving spouse can inherit the unused percentage of their late partner's allowances, which is how couples reach the headline £1,000,000. The residence band tapers once the estate exceeds £2,000,000, reducing by £1 for every £2 over that threshold. Whatever value remains above the combined allowance is taxed at 40 percent, and the net to heirs is the estate minus that tax. The model does not handle lifetime gifts within seven years, business or agricultural relief, or charitable rate reductions, so a complex estate needs professional advice.
Frequently asked questions
When does residence NRB apply?
When the family home passes to direct descendants (children, grandchildren). Tapers above £2M total estate value. Combined with NRB and spousal transfer, a married couple can pass up to £1M tax-free.
What is the UK Inheritance Tax rate?
The standard IHT rate is 40% on the portion of the estate that exceeds the available allowances. A reduced rate of 36% applies if at least 10% of the net estate is left to charity. Everything below the combined nil-rate band and residence nil-rate band is taxed at 0%.
Do lifetime gifts reduce Inheritance Tax?
Gifts made more than seven years before death are generally exempt from IHT. Gifts made within seven years are known as potentially exempt transfers and may be subject to taper relief, reducing the tax the closer to seven years the gift was made. This calculator does not account for lifetime gifts, so estates with recent large gifts should seek professional advice.
Is there a spousal or civil partner exemption?
Assets passed between UK-domiciled spouses or civil partners are entirely exempt from IHT regardless of value. The surviving partner can also inherit the deceased partner's unused NRB and RNRB percentages, potentially doubling the allowances available on the second death. This is what allows married couples to pass up to £1,000,000 free of IHT in the right circumstances.