HMRC inheritance tax calculator reflects nil-rate band

HMRC has updated the inheritance tax (IHT) calculator to include details on the nil-rate band for inheritance tax, which came into effect in April and gives married couples and civil partners a higher IHT allowance, set to reach £1m by 2020

Once the nil-rate band reaches its peak, the tax relief introduced by the last Conservative government expected to continue raising this joint allowance to £1m although the IHT relief only applies to inheritance transfers to direct descendants. 

The increased IHT allowance of £100,000 per person is a top-up to the existing £325,000 tax free IHT allowance for , and equivalent £650,000 allowance for married couples and civil partners.

However, it will only be available to lineal descendants from 6 April 2017. This means that only children and grandchildren will quality for the tax-free inheritance and not siblings, nieces and nephews, or trusts.

The residence nil rate band will start at £100,000 per person in 2017-18, and then rise to £125,000 in 2018-19, £150,000 in 2019-20, and £175,000 in 2020-21.

So by 2020-21 the effective IHT kick-in point will be estates worth over £1m for couples. It will then increase in line with CPI from 2021-22 onwards.

This calculators works out estate value when legacies in a will are free of tax and other assets are tax exempt, based on the standard 40% rate and reduced 36%.

These two calculators gross up legacies at different rates as follows:

  • legacies at the standard rate of inheritance tax of 40%; and
  • for legacies where the estate is paying the reduced rate of IHT at 36% because at least 10% of the estate has been left to charity.

HMRC warns that the calculator is only designed for straightforward calculations, adding that for ‘assets that qualify for agricultural or business relief, the calculations can become very complicated’.

HMRC inheritance tax calculator

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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