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Inheritance tax applies to the taxable portion of the estate and is charged at a standard 40%. With the right IHT planning, gifting millions of pounds worth of estate can be tax-free. Calculating potential IHT charge earlier makes this possible, helping individuals become more aware of their tax implications, employ all applicable means to reduce the bill, and pay the right amount to HMRC.
Find out more about inheritance tax calculator UK 2024 in this article, which also covers how inheritance tax works, how it is calculated, and IHT implications on gifts, married persons and/or widows, and other relevant FAQs.
A Quick Guide to Inheritance Tax
Every person is entitled to a nil rate band/lifetime transfer allowance of £325,000 and a residence nil rate band of £175,000 (for the main home), which means a total tax-free threshold of £500,000. Couples can combine their allowances, making a total of £1m before they are due any IHT. Gifting £3,000 (the annual exemption amount) is tax-free per year. More than that amount, the 7-year rule applies.
Calculating the IHT bill involves adding up the assets in gross value, subtracted by the total liabilities. This arrives at the net asset value, which will then be deducted by the taxpayer’s lifetime allowances. The remaining value will be due the 40% IHT.
Some assets included on IHT calculations are:
- Property
- Shares
- Cars
- Valuable art
- Bank accounts
Assets that may not attract IHT include:
- Money donated to charity
- Money contributed to pensions
- Trade business assets
- Agricultural assets
Liabilities may include the following:
- Loans
- Mortgages
- Credit cards
Personal representatives will typically have to pay the IHT bill 6 months after the estate giver dies, or longer if the asset is not easily liquidated, such as a property investment. Assets can only be distributed when the IHT bill is paid. Working out the accurate IHT amount is crucial to avoid overpaying or underpaying this tax. Use our inheritance tax calculator UK below to plan IHT accordingly.
Inheritance Tax Calculator HMRC
HMRC offers an inheritance tax reduced rate calculator, which works best for those who prepare their own will and/or are the personal representatives of the estate for deaths that occurred after 6 April 2012.
Inheritance Tax Calculator for Gifts
Every year, anyone can gift within the £3,000 annual exemption without being subject to IHT. This amount can be carried forward to the next year, but only for one year. More than that amount, the 7-year rule applies. If the giver outlives the gift for 7 years, the gift of any worth will be IHT-free.
When the giver dies before the seven years end, and the gift is above £325,000, the beneficiaries will be due IHT. In that case, taper relief applies where the IHT rate depends on when the gift was given. See table below for specific taper relief rates:
| Years Between Gift and Death | Tax Rate |
|---|---|
|
Between 3 and 4 years |
32% |
|
Between 4 and 5 years |
24% |
|
Between 5 and 6 years |
16% |
|
Between 6 and 7 years |
8% |
|
More than 7 years |
0% |
Use our inheritance tax calculator for gifts below for an accurate IHT bill calculation.
Inheritance Tax Calculator for Married Couples
Married couples or civil partners can combine their lifetime transfer allowances to arrive at a total of £1m ‘spousal exemption’ amount. This allows them to bequeath assets tax-free to their heirs.
Couples can also transfer assets to one another tax–free, as the surviving spouse can use their deceased partner’s remaining allowances. Depending on personal circumstances, the surviving partner can take advantage of up to a £1m IHT exemption.
Use our inheritance tax calculator for widow to determine how much IHT to pay according to when the deceased partner died.
Frequently Asked Questions
Those leaving an estate below the lifetime transfer allowance of £325,000 will not incur the IHT bill, as well as if the asset is invested in a pension or donated to a charity.
A few of the best ways to avoid paying IHT are to transfer assets to a spouse or civil partner in the will, making a gift within £3,000 per year, contributing to pension, and more.
IHT applies to both residents and non-residents. Foreigners, however, will only be subject to IHT for the UK assets/properties they received.
Tax experts in the IHT planning advisory niche for several years are the most reliable advisors. Legend Financial has been in the industry for more than ten years, garnering loyal clients throughout.
Plan Your Legacy with Legend Financial
Without proper planning, inheritance tax can eat up most of the legacy you may want to leave to your loved ones. Legend Financial’s inheritance tax calculator UK and planning expertise will help you optimise your estate, mitigate or avoid your IHT bill, or pay the right amount to HMRC. Reach our IHT planners today!
