Inheritance Tax

Using Inheritance Tax exemptions and rates in force for deaths occurring during the chosen tax year

This calculator only gives an estimate of Inheritance Tax liability where no inheritance has been given away by the deceased within the 7 years before his/her death.

NOTES ON THE USE OF THE INHERITANCE TAX CALCULATOR

Inheritance tax is paid on the total value of inheritance, not the amount received by any one beneficiary. Until 2017/18 a tax free allowance of £325,000 was claimable for each deceased individual. Where the deceased was married and the spouse died earlier, a double tax free allowance applies totalling £650,000, one individual allowance for each spouse.

Starting in 2017/18 the individual tax free allowance is supplemented by a tax free inherited property allowance which applies where a home in which the deceased lived at some time in his life forms part of the inheritance. This additional allowance was introduced by the Government to take into account rising property prices. In 2017/18 tax year the value of this allowance was £100,000, but it is set to rise by £25,000 each year until it reaches £175,000 in the 2020/21 tax year. This extra inheritance nil rate band only applies where the property is inherited by direct descendants of the deceased. Direct descendants include children, grandchildren, great-grandchildren, foster children, adopted children or stepchildren of either the deceased or his/her spouse. Property passed down to other relatives, such as nephews and nieces, is not eligible for this extra tax free inherited property allowance. To include this property nil rate allowance in the calculated inheritance tax you need to check two radio buttons: the first which marks the inherited property as one in which the deceased lived, and the second which confirms that the person(s) inheriting the property are direct descendants of the deceased.

This calculator estimates Inheritance Tax payable for a straightforward set of circumstances. It assumes:

1. No inheritance has been given away by the deceased within the seven years preceding the date of death. This would have occurred if the deceased had made gifts of significant sums of money during this period which were
   • not in the form of regular payments
   • significantly reduced the deceased's wealth
   • exceeded available exemptions for gifts (which usually is the case if a gift exceeded £6,000)
   If inheritance was given away during the seven years before death then some of the tax-free inheritance "allowance" will have been used up. This means that more tax is payable on the estate that remains at the time of death. Gifts made in the last three years of the deceased person's life are likely to cause the greatest increase in tax payable at death with gifts made between 3 and 7 years before the death having a lesser influence. Adjusting Inheritance Tax calculations to take account of gifts during the final seven years of the deceased's life is beyond the scope of this simple calculator.
2. Both the deceased and his/her spouse are domiciled, or have always lived, in the UK. If either the deceased or his/her spouse are subject to taxation by another country then other factors may come into consideration which are beyond the scope of this calculator.
3. There are no pension arrangements, pre-owned assets with reservations of benefit (e.g. a house given to a child on the condition that the donor has the right to continue living in it) or other assets at the time of death which were not owned outright by the deceased. The Inheritance Tax associated with such assets is beyond the scope of this calculator.
4. There are no business assets used in a business owned or part-owned by the deceased person which qualify for business relief. Some business assets owned by deceased persons are eligible for up to 100% relief from Inheritance Tax but this is beyond the scope of this calculator.
5. Since 2014/15 a 10% reduction in rate of Inheritance Tax may apply where 10% or more of the deceased's assets are bequeathed to registered charities.  This calculator does not take into account this reduction, if it applies.

Sometimes money was paid into a trust by the deceased with the intention that it was to be paid out after his/her death to named beneficiaries. These "Chargeable Lifetime Transfers" attract Inheritance Tax at the time the donations are paid into the trust. Chargeable Lifetime Transfers may also give rise to extra Inheritance Tax at the time of death, but this is beyond the scope of this calculator.

Capital outstanding on any endowment mortgages at the time of death should not be entered in the mortgage field in the calculator, as these sums are usually paid by the Life Assurance policy associated with these mortgages.

Value of funds in the deceased person's bank accounts should include any interest payable up to the date of death.

Valuation of household and personal goods should be the open market value or realistic selling value, not the replacement value for insurance purposes.

Investments include any stocks and shares held by the deceased.

The deceased person's assets should include any unpaid salary, pension arrears, rent owed by any tenants, tax refunds due and refunds received from any surrendered licences or insurance policies.

Valuations of real estate for Inheritance Tax purposes, including the deceased person's own home, is likely to require the services of a professional valuer.

Value of debts should not include any debts from gambling.

All assets or liabilities of the deceased, wherever located in the world, should be included in the valuation of the deceased person's estate.

Payment of Inheritance Tax is usually the responsibility of the Executor(s). If the will assigns specified sums or assets to named beneficiaries, and then leaves the residue to someone else, the tax is deducted from the residue and is suffered by the beneficiary of the residue.

This calculator only includes Inheritance Tax rates for the tax years which can be selected.

This calculator requires correct valuations of the deceased person's assets and liabilities in order to generate a correct tax liability. Overestimates or underestimates of the value of assets may produce a corresponding overestimate or underestimate of Inheritance Tax payable.

This calculator is only intended to give an estimate of Inheritance Tax liability subject to the above conditions and limitations. Four Elms Bookkeeping accepts no liability for the use of output generated by this calculator.