What is Inheritance Tax?

Inheritance Tax (IHT) is a tax levied on the estate (property, money, and possessions) of someone who has died.

In the UK, it’s currently charged at 40% on the portion of the estate that exceeds the tax-free threshold, which is currently £325,000.

There are various exemptions and reliefs available, such as the Residence Nil Rate Band for main homes passed to direct descendants, and the ability to pass assets tax-free to a spouse or civil partner.

How to Use the Inheritance Tax Calculator?

1. Total Estate Value: Enter the total value of the deceased’s estate, including all assets such as property, savings, investments, and personal possessions.

2. Value of Main Residence: Input the value of the deceased’s main home. This is used to calculate the Residence Nil Rate Band, which can increase the tax-free threshold.

3. Gifts Made in Last 7 Years: Enter the total value of any gifts made by the deceased in the seven years before their death. These may be subject to Inheritance Tax.

4. Debts and Liabilities: Include any outstanding debts or liabilities that the estate is responsible for paying. These are deducted from the estate’s value before tax is calculated.

5. Charitable Donations: Enter the value of any charitable donations made from the estate. Significant donations can reduce the tax rate from 40% to 36%.

6. Leave Everything to Spouse/Civil Partner: Check this box if the entire estate is being left to a spouse or civil partner, as this usually exempts the estate from Inheritance Tax.

7. Calculate: Click the “Calculate Inheritance Tax” button to see the results. The calculator will then display:

• The total estate value
• The taxable estate value (after deductions)
• The tax-free threshold (including any applicable Residence Nil Rate Band)
• The taxable amount
• The applicable tax rate
• The estimated Inheritance Tax due

The tool also provides a brief explanation of the results, including why certain rates or exemptions have been applied.

This calculator is designed to give a general estimate of potential Inheritance Tax liability. It takes into account the main factors that affect IHT, including the basic nil-rate band, the residence nil-rate band, gifts made within seven years of death, charitable donations, and the spouse exemption.

However, Inheritance Tax can be complex, and there may be other factors specific to an individual’s situation that could affect the tax due. For this reason, it’s always advisable to consult with a professional financial advisor or tax specialist for personalized advice on Inheritance Tax planning and liability.