UK Inheritance Tax (IHT) Calculator

In Inheritance Tax (IHT), NRB stands for the Nil-Rate Band. It is the tax-free threshold or allowance for an individual's estate, meaning no inheritance tax is payable on the value of the estate that falls within this band. The standard NRB is currently £325,000 and has been frozen at this level until at least April 2028.

In addition to the standard NRB, a separate Residence Nil-Rate Band (RNRB) was introduced to help individuals pass on a family home to direct descendants (children, grandchildren). The RNRB is currently £175,000 per individual, also frozen until at least April 2028.

To qualify, the deceased must have owned a home, and it must be inherited by their direct descendants.

The RNRB is reduced (tapered) for estates with a net value of over £2 million, at a rate of £1 for every £2 the value exceeds this threshold.

Any unused percentage of NRB can be transferred to a surviving spouse or civil partner. This means a married couple or civil partners can potentially have a combined NRB of up to £650,000 on the second death.

Any unused RNRB from the first death can also be transferred to the surviving spouse or civil partner. This means a couple could potentially have a combined total RNRB of up to £350,000.

By combining both transferable allowances, a qualifying married couple or civil partners can potentially pass on up to £1 million (£325,000 NRB + £175,000 RNRB, both doubled) without incurring IHT.

The seven-year rule in UK Inheritance Tax (IHT) means that if you make a lifetime gift of assets (known as a Potentially Exempt Transfer, or PET) and survive for a full seven years after making that gift, its value becomes fully exempt from IHT and is not counted as part of your estate on death.

If you die within seven years of making a PET, the gift "fails" and its value is added back into your estate for IHT purposes.

Certain gifts are immediately exempt from IHT regardless of when they are made, such as gifts between spouses/civil partners, the annual £3,000 exemption, and small gifts of up to £250 per person. These do not rely on the seven-year rule.

IHT must generally be paid within six months of death, but releasing assets from an estate (probate) can take longer, creating a potential cash-flow problem for executors. An advisor can plan for this, perhaps by setting up a life insurance policy written into a trust, which provides a tax-free lump sum specifically to cover the IHT liability.

IHT regulations are intricate and subject to change. An advisor has a deep understanding of the current legislation, including various reliefs (like Business Property Relief or Agricultural Property Relief) and exemptions (such as the annual gift allowance or the residence nil rate band) that individuals may not be aware of or fully understand how to utilise effectively.

A good advisor will assess your unique financial situation, assets, liabilities, and long-term family goals to create a personalised, comprehensive estate plan. This ensures that all available options, such as using trusts or life insurance policies, are considered and integrated into a cohesive strategy that balances your needs during your lifetime with your beneficiaries' future inheritance.

Advisors can structure lifetime gifting strategies to reduce the value of your estate, such as advising on the seven-year rule for Potentially Exempt Transfers (PETs) and ensuring that "gifts with a reservation of benefit" are avoided. They can also help set up various types of trusts, which are specialist areas of law, to protect assets and control how and when they are distributed to beneficiaries.