Inheritance tax calculator — methodology

The calculation, in order

1. The gifts, oldest first. Each takes the annual exemption for the tax year it fell in, then whatever the gifts before it left of the nil-rate band. The death rate is charged on the excess; the taper percentage is then applied to that tax.
2. The residence nil-rate band. The residential enhancement plus any brought-forward allowance, less the taper.
3. Deduct the spouse and charity exemptions to get the chargeable estate.
4. Set the residence band against it, then the ordinary band.
5. Charge the remainder at the death rate, reduced where the charity condition is met.

E                = estate after liabilities, BEFORE exemptions and reliefs
taper            = max(0, E − taper threshold) ÷ 2
default          = residential enhancement + brought-forward allowance
adjusted         = max(0, default − taper)

chargeable       = E − spouse − charity
RNRB applied     = min(adjusted, qualifying home, chargeable)
NRB to estate    = max(0, NRB + transferred − used by gifts)
taxable          = chargeable − RNRB applied − NRB used by estate

tax on estate    = taxable × 0.4 (or × 0.36 where the charity test is met)

per gift:  covered = min(chargeable gift, NRB − cumulation)
           tax     = (chargeable gift − covered) × 0.4 × taper percentage

The last line is the whole of the taper relief question, and the brackets are where every wrong version goes wrong. The nil-rate band meets the gift’s full value; the taper percentage meets the tax.

Why the rate on the next pound is not the rate on the estate

Above £2,000,000 the residence nil-rate band is withdrawn by £1 for every £2 of estate. So a pound of estate in that stretch is charged at the death rate like any other pound, and it also removes £0.50 of band that would have been charged at nothing. The pound is taxed one and a half times over.

On an estate of £2,000,000 leaving a £500,000 home to direct descendants, the tax is £600,000.00 and the rate on the next pound is 60.00%. Take the estate to £2,350,000 — where the residence band has gone entirely — and the tax is £810,000.00: the extra £350,000 cost £210,000.00. Above that point the rate on the next pound falls back to 40.00%, because there is no band left to take.

The figure is measured, not written. The engine runs the entire estate again with one more pound in it and reports the difference, which is the same forward difference the income tax pages use for the personal allowance taper. That matters here for a specific reason: an estate above the threshold whose residence band is already nil — no home passing to a direct descendant, or the taper finished — pays the plain death rate on its next pound, and a page that printed the elevated rate whenever the estate exceeded the threshold would be wrong for all of them.

The taper is measured on E, the estate after liabilities but before exemptions and reliefs, and without the failed lifetime gifts in it. That is IHTM46023, and it has a consequence worth stating on its own: an estate above the threshold that passes entirely to a spouse pays no tax and still has its residence band tapered — and the tapered figure is what fixes the percentage the survivor may claim.

Taper relief reduces the tax on a gift, not the value of the gift

IHTM14611, verbatim: taper relief “takes the form of a percentage reduction in the tax which would otherwise be payable on the transfer. So, if no tax is payable on the transfer because it does not exceed the Inheritance Tax nil-rate band (after cumulation), there can be no relief. Taper relief does not reduce the capital value of the transfer.”

The wrong implementation multiplies the gift by the taper percentage and sets the nil-rate band against the reduced figure. It is wrong in two directions at once, and the second one is where the money is: it leaves the estate a nil-rate band the estate does not have.

Worked here rather than asserted. An estate of £500,000 with no home passing to a direct descendant, and one gift of £300,000 made 6 years before the death. The taper table charges 20.00% of the full rate at that age — and the relief comes to £0.00, because the tax it had to reduce was £0.00. The gift sat inside the band.

What it did do is consume £297,000.00 of nil-rate band, leaving the estate £28,000.00. The same estate with no gift at all pays £70,000.00; with the gift it pays £188,800.00 — £118,800.00 more. A reader told only that their gift was “tapered” has been told the half that is not true and not the half that costs them.

The transferable bands are percentages, and that is not a presentational choice

IHTA84/s8A transfers a percentage. The survivor’s nil-rate band is increased by the percentage of the band that the first estate left unused, applied to the band in force at the survivor’s death — not by the cash the first estate did not spend. The residence band has the same mechanism under the name brought-forward allowance, and both are capped at 100% of a single band however many marriages have ended in death.

Storing an amount instead would be correct for as long as the figures do not move and wrong the year they do — a bug that lies dormant for years and then costs a survivor real money. The figures have not moved since 6 April 2009 for the nil-rate band, and are fixed to the end of the 2030 to 2031 tax year, which is exactly the condition under which this kind of mistake is invisible. The engine reports the unused fraction against the single band maximum, following IHTM43020, so an estate that itself claimed a transfer can compute a figure above the cap and have it capped.

The reduced charity rate, and the baseline amount

Leave at least 10.00% of the baseline amount to charity and the rate on the rest of the death estate falls from 40.00% to 36.00%. The baseline is HMRC’s three steps at IHTM45009:

step 1   the chargeable estate, after every exemption including the charitable one
step 2   less the nil-rate band available to the estate
step 3   add the charitable legacy back

baseline = max(0, step 3)
required = ceiling(baseline × 0.1)

The residence nil-rate band is not deducted at step 2. IHTM45009 is explicit that the nil-rate band maximum is not increased by any residence band, and deducting it would shrink the baseline and hand the reduced rate to estates that have not earned it. Note also what falls out of the algebra: the charitable legacy is subtracted at step 1 and added back at step 3, so the baseline does not depend on it. The boundary is fixed before anyone decides what to give.

It is a cliff. A pound short and the reduced rate does not apply at all — so the calculator reports the shortfall and, where the estate can reach the boundary, recomputes the whole thing there with a second engine call, and shows what the other beneficiaries give up as well as what the tax saves. Showing only the saving is what makes the reduced rate look free, and it is not: the money has to leave the estate to earn it.

Cumulation over seven years, and why fourteen cannot arise here

A failed gift is charged with cumulation of the chargeable transfers made in the seven years before that gift, not before the death. Where there are gifts into trust — chargeable lifetime transfers — that reaches back fourteen years from the death, which is the “14-year rule” people have usually heard of.

This calculator cumulates only the gifts inside the 7-year window, in date order, which is the same thing provided there are no chargeable lifetime transfers — and there cannot be, because trusts are not modelled and there is no input that could express one. A gift made more than 7 years before the death is an exempt transfer and never enters anybody’s cumulative total, so it cannot reach forward. The day trusts are added, this is the line that changes with them.

How a gift’s date is derived, which is this page’s own modelling choice

The engine wants a calendar date for each gift, because it needs two different intervals from it: complete calendar years to the death, for the taper table and the seven-year rule, and the tax year the gift fell in, for the annual exemption and its one year of carry-forward. Neither is derivable from the other.

The calculator asks instead for the number of complete years before the death — which is the number the taper table is indexed by, and the number a reader can actually answer — and places the death on 6 April of the tax year selected, with each gift on the same day in an earlier year. Two gifts entered with the same number of years therefore fall on the same day and share one annual exemption; gifts entered with different numbers fall in different tax years and each has its own, with anything unused carried into the following year and no further. All of that is what the statute does with gifts made on those dates.

The list is capped at 5 gifts, which is a limit of the shareable link rather than of the tax: the link carries a flat set of fields and cannot express a list of arbitrary length. The cap is stated on the calculator page itself, next to the button that stops appearing.

Rates, thresholds and allowances

The columns are identical, and that is the tax rather than a copy-paste. The nil-rate band has stood at its current figure since 6 April 2009, and Budget 2025 fixed the nil-rate band, the residence nil-rate band and the taper threshold at their current levels to the end of the 2030 to 2031 tax year. 6 April 2031 is the first date on which any of the three can move; HMRC’s manual records the statutory default that takes over then, which is that the residential enhancement and the taper threshold rise with CPI unless the Treasury specifies otherwise.

Sources

• gov.uk — Inheritance TaxThe death rate, the nil-rate band, the spouse and charity exemptions, and the order the bands are set against an estate.
• gov.uk — Inheritance Tax: gifts and the 7 year ruleThe annual exemption and its one year of carry-forward, and the taper table as it is published to taxpayers.
• gov.uk — Inheritance Tax: residence nil rate bandThe taxpayer-facing guidance, with the worked examples that fix the order the two bands are applied in and what that leaves transferable.
• HMRC Inheritance Tax Manual IHTM14611 and IHTM14612 — taper reliefThat taper relief reduces the tax and not the value, that it does nothing where the gift is inside the band, and that the years are calendar years rather than tax years.
• HMRC Inheritance Tax Manual IHTM46022–IHTM46025 — the residence band and its taperThat the taper is measured on the estate after liabilities but before exemptions and reliefs, and that it applies to the default allowance rather than to the enhancement alone.
• HMRC Inheritance Tax Manual IHTM43020 — transferring an unused nil-rate bandThat the transfer is a percentage of the single band maximum at the first death, and that the total is capped.
• HMRC Inheritance Tax Manual IHTM45009 and IHTM45010 — the baseline amountThe three steps of the baseline amount, and that the nil-rate band maximum used in it is not increased by any residence nil-rate band.
• gov.uk — Inheritance Tax thresholds and interest ratesThe published figures themselves.
• gov.uk — Inheritance Tax: thresholds (Budget 2025)The legal authority for the freeze, and its end date. The rates table and this paper disagree by a year on the residence band; the policy paper governs.
• gov.uk — Business Relief for Inheritance TaxCited for a relief this calculator deliberately does not apply, and which changes the answer rather than refining it.
• gov.uk — Inheritance Tax on unused pension funds and death benefitsThe 6 April 2027 change, which is outside every tax year this calculator offers.

7 things this calculation does not model, listed by the engine rather than by this page

Each of these changes the answer rather than blurring it, and each says which direction the answer is wrong in. They are rendered from the array the calculation engine exports and attaches to every result it produces — deliberately, so that no page built on it can show a total without them, and so that this list cannot drift from what the engine actually does.

• Business and agricultural property relief. Qualifying business and farm assets are relieved at 100% or 50%, capped from 6 April 2026 at a combined £1 million allowance per estate. Neither the reliefs nor the allowance is modelled, so an estate holding qualifying property is over-taxed here. The reliefs also do not reduce the estate value used for the residence nil-rate band taper, so the interaction is not a simple scaling.
• Trusts and settled property. No relevant property regime, ten-year anniversary charge, exit charge or qualifying interest in possession. Because a gift into trust is a chargeable lifetime transfer rather than a potentially exempt transfer, this also means the fourteen-year cumulation rule cannot arise, which is what makes the simple seven-year cumulation used here correct for the estates that are modelled.
• Long-term residence, excluded property and the capped spouse exemption. From 6 April 2025 liability turns on long-term UK residence rather than domicile. This engine assumes the whole estate is within charge and that the spouse exemption is unlimited. It does not model excluded property, nor the capped spouse exemption that applies where the surviving spouse is not long-term UK resident and no election is made — an estate in that position is under-taxed here.
• Quick succession relief. IHTA 1984 s.141 reduces the tax where the deceased themselves inherited within five years of their own death. Not modelled, so an estate entitled to it is over-taxed here.
• Grossing up and estate components. The reduced charity rate is computed for a single general component — the free estate. Survivorship and settled-property components, elections to merge them, and the grossing up of tax-free legacies out of a partly exempt residue are not modelled. HMRC’s own example (IHTM45030) shows the 10% test flipping on the grossing up alone, so a will with tax-free legacies and an exempt residue needs professional calculation rather than this one.
• Small gifts, wedding gifts and normal expenditure out of income. The £250 small-gift exemption is per recipient per tax year and is lost entirely if another exemption is used on the same person; wedding gifts depend on the donor’s relationship to the couple; normal expenditure out of income depends on a pattern of giving. None can be derived from a gift’s value and date alone. Pass the covered amount as the gift’s otherExemptAmount and it is deducted before the annual exemption, which is modelled in full.
• Gifts with reservation, the downsizing addition, instalments and interest. A gift the donor still benefits from stays in the estate; the downsizing addition preserves residence nil-rate band for someone who sold or downsized their home. Neither is modelled, and nor are the instalment option or interest on late-paid tax. The first two under-state and over-state the bill respectively.

Two dated changes, neither of them inside the years this page offers

• 6 April 2027 — unused pension funds come into charge. Most unused pension funds and death benefits fall inside the value of an estate from that date, with personal representatives rather than scheme administrators responsible for reporting and paying. Death in service benefits from a registered scheme, and dependants’ scheme pensions from a defined benefit or collective money purchase arrangement, are excluded. It is a larger change than a bigger number: the estate value is also what the residence band taper is measured on, so a pot added to an estate near £2,000,000 raises the rate on the next pound as well as the total, and the beneficiary of a pension is chosen by an expression of wish rather than by a will — which is not something any input here carries.
• 6 April 2031 — the thresholds unfreeze. Not a change to model but the date on which figures that have not moved in years become capable of moving again. Both tax years offered here are inside the freeze, which is why their columns above agree.

Both are recorded in packages/tax-core/VERIFICATION.md with their sources, so that the tax year in which either becomes relevant cannot be added without somebody reading the note first.