How to Calculate Inheritance Tax

Calculating Inheritance Tax correctly requires more than comparing the estate value to a single threshold. A number of allowances, exemptions, and reliefs interact to produce the final taxable figure.

Step 1: Gross estate value

Add together the date-of-death value of all assets owned solely by the deceased, their share of jointly owned assets (for tenants in common), and any gifts made in the seven years before death not covered by an exemption.

Step 2: Deduct liabilities

Deduct all outstanding debts, mortgages, credit cards, utility bills, and reasonable funeral costs to reach the net estate value.

Step 3: Apply exemptions

Deduct any exempt amounts, such as assets passing to a surviving spouse or civil partner (generally fully exempt) and assets passing to qualifying charities.

Step 4: Determine the available threshold

Calculate the total nil rate band: the standard £325,000 plus any TNRB, RNRB, and TRNRB that apply.

Step 5: Calculate the tax

Subtract the available threshold from the net taxable estate. Multiply any positive result by 40% for the IHT liability. A reduced rate of 36% applies where at least 10% of the qualifying estate is left to charity.

Why you should not attempt this without proper guidance

Each step involves specific rules and documentation. An error at any step affects the final liability. Missing a valid allowance means paying more IHT than the estate owes. YouCanDoProbate performs every step of this calculation automatically and produces an accurate IHT400.