Inheritance Tax Planner (Pro) United Kingdom

What the inheritance tax planner does

The planner estimates the Inheritance Tax payable on a UK estate and shows how a lifetime gift could reduce it. It applies the nil-rate band, the residence nil-rate band, the taper on large estates and the standard rate, then reports the tax due now alongside the tax due after a gift.

The allowances are generous but conditional, the taper on larger estates is easy to miss and gifts follow their own timing rules, so a little planning can make a large difference. Seeing the numbers laid out makes the trade-offs clear.

How the estate is taxed

Start with the value of the estate and set against it the nil-rate band of £325,000, which every estate receives. If a spouse or civil partner died earlier without using all of their band, the unused percentage can be transferred; enter it and the planner increases the allowance accordingly.

Where the home passes to direct descendants, the residence nil-rate band of up to £175,000 is added on top. Whatever value is left above the combined allowance is taxed at 40%. The planner applies the bands in the order HMRC does.

Why the residence band can disappear

The residence nil-rate band only applies when a home is left to children, grandchildren or other direct descendants, which is why the planner asks you to confirm that. It is also withdrawn on larger estates.

For every £2 by which the estate exceeds the £2 million taper threshold, the residence band is cut by £1, so on a large enough estate it disappears. This is a common and expensive surprise, and the planner shows how much of the band survives.

A worked example

An estate is worth £800,000 and the home passes to the children. The £325,000 nil-rate band and the £175,000 residence nil-rate band give an allowance of £500,000, leaving £300,000 taxable. At 40% the Inheritance Tax is £120,000.

An estate of £2,200,000 exceeds the £2 million threshold by £200,000, so the residence band is cut by £100,000, from £175,000 to £75,000. The total allowance falls to £400,000, leaving £1,800,000 taxable and a bill of £720,000.

How gifting changes the picture

A lifetime gift is one of the most direct ways to reduce a future Inheritance Tax bill. Once you survive seven years from the date of the gift, its value normally falls outside your estate. The planner models this best case: the gift is made now and you live for the required seven years, so it reduces the taxable estate in full.

Entering a gift adds a second scenario alongside the do-nothing case, and the difference is the tax saved. The seven-year condition is real, though: if you die sooner, the gift may still count towards the estate and the saving could be smaller than the planner shows.

Assumptions and limits

The planner supports decisions; it is not a substitute for professional estate planning. It uses the standard bands and rate and assumes any gift survives seven years. It does not handle every relief and exception, such as business or agricultural relief, the reduced rate for estates leaving at least 10% to charity, or the detailed treatment of trusts and earlier gifts.

The two bands, the taper threshold and the tax rate come from maintained parameters, so the estimate follows the current year’s thresholds.

Using the planner well

Start with your estate as it stands to see the baseline bill, then confirm whether your home will pass to direct descendants, since that one choice can be worth up to £175,000 of allowance. If the estate is near or above £2 million, note how much of the residence band is being withdrawn, as that often points to the biggest opportunity.

Then test a gift or two to see the tax each would save, which helps you weigh giving during your lifetime against keeping assets in reserve. For a plan you intend to act on, confirm the details with a qualified estate planning or tax adviser.

This is general information only and not financial or tax advice.

About This Inheritance Tax Planner

Use this Inheritance tax planner to get an instant, accurate estimate. The figures follow official guidance and every rate and threshold is kept up to date for 2026. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.