How much UK inheritance Tax (IHT) will you pay? Use our calculator to calculate the liability
Please note that the quick online UK Inheritance Tax (IHT) calculator may not look right on a mobile device. You are recommended to view the tax calculators on a desktop/laptop.
This calculator takes into account that pensions are part of your estate for IHT purposes from April 2027.
UK inheritance tax is what you pay on death. More to the point, the tax liability will be paid by your executor, who looks after your assets. The IHT400 form tells HMRC how much IHT is to be paid.
You must send the IHT400 HMRC form within 12 months of death. Failure to file and pay Inheritance Tax on time will result in interest being chargeable after six months.
It is possible to negotiate with HMRC when inheritance tax needs to be paid depending on the type of assets held. This is because certain assets, such as property investments, are not liquid and cannot be sold immediately to pay the tax liability.
You typically pay HMRC 40% tax on your net assets. Calculating IHT carefully is vital so you do not underpay or overpay IHT to HMRC. Our free online inheritance tax calculator will help you with some essential tax planning.
Use our free online Inheritance Tax calculator today to help you save IHT in the future. It is important to use these tools to identify and reduce inheritance tax. It is good to calculate your IHT liability to plan ways of reducing it.
Pensions subject to UK IHT After April 2027
From April 2027, the Labour Party’s proposed tax changes will make UK pensions subject to inheritance tax (IHT) if they remain unspent or unallocated at the time of death. Under the new rules, unused pension funds will be included in the deceased’s estate and taxed at the standard IHT rate of 40% if the total estate exceeds the IHT threshold. This marks a significant shift from the current system, where most pension funds are exempt from IHT, prompting the need for individuals to revisit their retirement and estate planning strategies.
Example 1: If a pension holder passes away after April 2027, any remaining pension funds that exceed the unused lifetime allowance will be included in the value of their estate for inheritance tax purposes. For instance, if the pension pot is worth £1.2 million and the lifetime allowance is £1 million, the excess £200,000 will be subject to the standard inheritance tax rate of 40%. This change makes it essential for individuals with substantial pension savings to consider how they structure their retirement funds and estate planning.
Example 2: A person dies in April 2028, leaving behind a pension valued at £900,000, which is below the lifetime allowance. Under the new rules, the entirety of the pension will be considered part of their estate if it remains untouched or unallocated to a beneficiary, potentially pushing their estate above the inheritance tax threshold. To mitigate this, individuals may need to nominate beneficiaries or explore options like gifting or transferring funds into trusts to reduce inheritance tax liability.
IHT Calculation
What are UK inheritance tax rates? I hear you ask.
Each person is provided with a nil rate band for UK IHT purposes of £325,000. A husband/wife or civil partnership would benefit from an IHT lifetime allowance of £650,000 as they each get the £325,000. Anything above this tax threshold is taxed at 40%.
The government also introduced a Residence Nil Rate Band (RNRB) in April, helping to protect the main home asset by another £175,000.
This means that someone with a high-valued home would benefit from the £325,000 Inheritance lifetime Allowance and the Residence Nil Rate Band of £175,000, giving rise to a tax-free amount of £500,000.
I’m advising investors that couples can also pool their allowances, meaning they could leave a total of £1m before any inheritance tax is due.
You need to add up your market-value assets, such as
– Property (homes and investments)
– Shares
– Bank accounts
– Cars
– Art
Once you add up these asset types, it will give you a gross asset value.
To calculate IHT, you decrease the above gross asset values by your liabilities, such as:
– Mortgages
– Loans
– Credit cards
Your IHT calculation will involve you adding your gross assets, as shown above, less the liabilities. This simple calculation will provide you with a net asset value for the IHT calculation.
Your inheritance tax lifetime allowances will decrease the net assets by up to £1 million, as described above.
The remaining asset value will be subject to an inheritance tax charge of 40%.
Our IHT tax calculator will help you understand how assets and liabilities affect your potential inheritance tax liability.
Use our free online IHT Tax calculator today to help you save IHT in the future
UK IHT Exemptions
Some assets are not taken into consideration when calculating inheritance tax:
– Agricultural assets
– Trade business assets
– Money invested in pensions (before April 2027)
– Amounts given to charity (gifts to charity reduce your inheritance tax bill considerably)
It would be best to speak with an inheritance tax specialist when planning. We have created an online IHT calculator to help you identify these assets that will not be subject to inheritance tax.
It is essential to see if you can sell/transfer assets from IHT chargeable amounts to exempt amounts. An example is selling residential property investments and investing money into pensions. You might pay Capital Gains Tax, but this might be less than 40% inheritance tax. This used to be the case before the HMRC budget changes that resulted in pensions being subject to IHT.
Want to understand what inheritance tax rates are? Use our online IHT calculator to see how to save on inheritance tax.
Three things you must get done
– Make a Will and ensure that it specifies people by their name(s) and the specific assets to be transferred to them
– Use your lifetime transfer allowance as stated above in ways to mitigate CGT & IHT
– Create an investment structure that pays any IHT liabilities without the need to dispose of any assets
Wills & executors/administration of your estate
Typically, the next of kin will act as the administrator of the Will to ensure that your wishes are carried out correctly. They are known as the executors.
Collectively, executors and administrators of a Will are called personal representatives. They will be responsible to:
– Administer the estate
– Collect unpaid debts
– Pay any tax due
Before you jump to someone’s aid as a personal representative, you need to know that you would be liable for any unpaid debts and tax due. Personal representatives will need to ensure that these are paid before any distributions are made in accordance.
Personal representatives must ensure that liabilities are paid before the Will makes any distributions.
Grant of representation
The executors of the will need to obtain a grant of representation, which will allow them to administer the Will if the assets left are worth more than £5,000.
This will be done after they have completed an HMRC form to show the assets and liabilities of the deceased.