How to Calculate Inheritance Tax in the UK (2026/27)

If you have ever typed “how much inheritance tax will I pay” into Google, you are not alone. It is one of the most searched tax questions in the UK, and the answer is less complicated than most people expect. Once you know the three key numbers, you can work out an estimate on the back of an envelope.

This guide walks you through exactly how to calculate inheritance tax in the UK for the 2026/27 tax year, with worked examples for both single people and married couples. If you would rather skip the maths, our free inheritance tax calculator does it for you in seconds.

The Three Numbers That Decide Everything

Inheritance tax (IHT) is charged at a flat 40% on the part of an estate that sits above the tax-free allowances. For 2026/27, those allowances are:

Allowance	Amount (2026/27)
Nil-rate band	£325,000
Residence nil-rate band	£175,000
Combined maximum for one person	£500,000

Both allowances have been frozen until April 2031, so these figures are not changing any time soon. The government’s own guidance confirms the current thresholds on GOV.UK’s inheritance tax pages.

The nil-rate band applies to everyone. The residence nil-rate band is extra, but only if you leave your home (or a share of it) to direct descendants such as children or grandchildren.

How to Work Out Inheritance Tax, Step by Step

Here is the method HMRC effectively uses, simplified into four steps:

Step 1. Add up the estate. That means property, savings, investments, and personal belongings, minus any debts and funeral costs.

Step 2. Subtract the nil-rate band (£325,000). If the estate is worth less than this, there is usually no inheritance tax to pay at all.

Step 3. Subtract the residence nil-rate band (£175,000) if a home is being left to children or grandchildren.

Step 4. Apply 40% to whatever is left. That is the inheritance tax bill.

Worked Example 1: A Single Person with a £600,000 Estate

Sarah owns a flat worth £420,000, has £180,000 in savings and investments, and no debts. She leaves everything to her two children.

Step	Calculation	Amount
Total estate	£420,000 + £180,000	£600,000
Minus nil-rate band	£600,000 – £325,000	£275,000
Minus residence nil-rate band	£275,000 – £175,000	£100,000
Tax at 40%	£100,000 x 40%	£40,000

So on a £600,000 estate, the inheritance tax bill comes to £40,000.

Worked Example 2: A Married Couple with a £900,000 Estate

Married couples and civil partners get a significant advantage: any unused allowance transfers to the surviving partner. If the first partner leaves everything to the other, the survivor can effectively double both allowances.

That means a married couple can pass on up to £1,000,000 tax-free (£500,000 each) when a home goes to their children.

Take a couple with a combined estate of £900,000, including the family home left to their children:

Step	Calculation	Amount
Total estate	Combined assets	£900,000
Minus combined nil-rate band	£900,000 – £650,000	£250,000
Minus combined residence band	£250,000 – £350,000	£0
Tax at 40%	Nothing above allowances	£0

No inheritance tax is due, because the full £900,000 sits within the couple’s combined £1,000,000 allowance.

How Much Inheritance Tax Will I Pay?

Here are quick answers for common estate sizes, assuming a single person with the full £325,000 nil-rate band and £175,000 residence nil-rate band.

Estate Size	Taxable Amount	Inheritance Tax Due
£500,000	£0	£0
£700,000	£200,000	£80,000
£1,000,000	£500,000	£200,000

What Counts Towards the Estate?

Not everything you own is counted the same way. Here is a quick reference:

Usually included	Usually excluded
Your home and other property	Gifts made more than 7 years before death
Bank accounts and savings	Life insurance written in trust
Stocks, shares and investments	Some business and agricultural assets (reliefs apply)
Cars, jewellery and valuables	Pension pots (usually outside the estate)

Gifts are the area that trips most people up. Anything you give away within seven years of death may still count, on a sliding scale called taper relief. GOV.UK explains the seven-year rule for gifts in detail.

Try It with Your Own Numbers

Reading examples is useful, but nothing beats running your own figures. Our free inheritance tax calculator uses the same 2026/27 rates shown above. Enter your estate value, tick whether a home is included, and it shows the full breakdown instantly. No sign-up, no email, just the answer.

Frequently Asked Questions

Figures in this guide reflect the 2026/27 tax year. Tax rules change, so check GOV.UK for the latest position, and consider professional advice for large or complex estates.