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Taxation (UK) · The liabilities arising on chargeable lifetime transfers and on the death of an individual

IHT Calculation on Death and the Death Estate

Updated 11 October 2026 · Fact-checked

Inheritance tax on death is 40% of the chargeable death estate above the nil rate band still available. Value the assets, deduct debts and funeral costs, remove exempt amounts, then set against the nil rate band after any chargeable gifts made in the seven years before death. Add the residence nil rate band if it applies.

Understand IHT Calculation on Death and the Death Estate

Inheritance tax (IHT) on death is charged on everything the person owned at the moment of death. This is the death estate. You value each asset at its market value on the date of death. Then you deduct liabilities, such as debts owed and reasonable funeral expenses.

Next you remove amounts that are exempt. The two you meet most often are gifts to a UK-domiciled spouse or civil partner and gifts to charity. Business property relief and agricultural property relief may also reduce the value of qualifying assets. What is left is the chargeable estate.

The chargeable estate is taxed at the death rate of 40%, but only above the nil rate band (NRB) of £325,000. The key trap is that the NRB may already be used up. Gifts made in the seven years before death can use it first. Chargeable lifetime transfers (CLTs) use it, and so do potentially exempt transfers (PETs), which become chargeable because the donor died within seven years. So you deal with the lifetime gifts first, in date order, and the death estate comes last.

The residence nil rate band (RNRB) of £175,000 can be added when the deceased's home, or its value, passes to direct descendants such as children or grandchildren. It is limited to the lower of the home's value and £175,000. It is reduced by £1 for every £2 that the estate exceeds £2,000,000. Unused NRB and RNRB can pass from a deceased spouse or civil partner, as a percentage of the band.

If at least a set share of the net estate is left to charity, the death rate is reduced from 40%. Read the question for this. Always show your workings, because marks are given for each step.

Key rules to remember

Chargeable estate
Assets at market value at death − liabilities and funeral costs − exempt transfers (spouse, charity) − reliefs (BPR, APR)
Spouse exemption applies in full only where the spouse is UK-domiciled. Check the domicile.
Death rate and nil rate band
IHT on estate = (chargeable estate − NRB remaining − RNRB available) × 40%
The NRB is £325,000 and the RNRB is £175,000. Use only the NRB remaining after earlier gifts.
NRB remaining for the estate
£325,000 − chargeable transfers in the 7 years before death (PETs and CLTs, in date order, after exemptions)
Add any NRB transferred from a deceased spouse or civil partner.
Tax on a PET or CLT that fails at death
(gift after exemptions − NRB available at that date) × 40%, then reduced by taper relief, less lifetime IHT paid
The NRB available at that date is £325,000 less chargeable transfers in the 7 years before that gift. Taper relief reduces the tax, not the gift value. Tax is never refunded.
Taper relief (years between gift and death)
3–4 years: 20% | 4–5: 40% | 5–6: 60% | 6–7: 80%
Under 3 years: no reduction. Over 7 years: no tax.
RNRB restriction
RNRB reduced by £1 for every £2 the estate exceeds £2,000,000
The RNRB is the lower of the home value passing to descendants and the RNRB available.

How to solve IHT Calculation on Death and the Death Estate questions

Follow this order in every death IHT question. It keeps the NRB in the right place.

  1. 1List all lifetime gifts made in the seven years before death, in date order. Ignore gifts made more than seven years before death.
  2. 2Deduct the available exemptions from each gift: annual exemption (current and previous year if unused), small gifts, marriage, and so on. This gives the transfer of value for each gift.
  3. 3Check the seven years before each gift for earlier chargeable transfers. Use the NRB against gifts in date order. Calculate 40% tax on any excess, then apply taper relief, then deduct lifetime tax paid.
  4. 4Value the death estate: assets at market value, less debts and funeral costs. Deduct exempt transfers and reliefs to reach the chargeable estate.
  5. 5Work out the NRB remaining after the gifts. Add any transferred NRB. Then check whether the RNRB is available and restrict it if needed.
  6. 6Tax the chargeable estate at 40% above the bands. Apply the reduced charity rate only if the question gives that condition.
  7. 7State who pays: personal representatives pay tax on the estate, and donees pay tax on failed PETs. Write your total clearly.

Quickest way: Gifts first, then estate: a three-line scorecard

When to use it: Use it for objective test questions and for the first draft of a Section C answer, when time is short.

  1. Write NRB £325,000 at the top. Subtract each gift in the seven years before death, in date order. Whatever is left is the NRB for the estate.
  2. Tax estate: chargeable estate − NRB left − RNRB, then × 40%.
  3. Sense check: if the NRB is already used up, the whole estate is taxed at 40% apart from any RNRB. Do not use the NRB twice.

Common mistakes in IHT Calculation on Death and the Death Estate

  • Giving the death estate the full £325,000 NRB when failed PETs or CLTs exist.

    Students start with the estate because it is the main item.

    Fix: Do the gifts first. The estate gets only the NRB left over.

  • Applying taper relief to the value of the gift instead of to the tax.

    The word 'reduction' is read as reducing the gift.

    Fix: Use the NRB first, calculate 40% on the excess, then reduce that tax by the taper percentage.

  • Forgetting to deduct liabilities and funeral expenses, or deducting them twice.

    Students rush through the asset list.

    Fix: Show a gross estate total, then one line for liabilities, then the net estate.

  • Giving the RNRB when the home does not pass to direct descendants, or ignoring the £2,000,000 restriction.

    The RNRB is memorised as an automatic extra band.

    Fix: Check who inherits the home, take the lower of home value and the RNRB, then apply the £1 for every £2 taper for big estates.

  • Looking back seven years from the death date for the NRB used by earlier gifts.

    Two different seven-year tests are confused.

    Fix: For each gift, look back seven years from that gift for earlier chargeable transfers. For the estate, the gifts in the seven years before death use the NRB.

  • Applying the spouse exemption to a non-UK-domiciled spouse without a limit.

    The exemption is learned as unlimited.

    Fix: Check the domicile of the spouse. State the condition in your answer.

Worked examples

Example 1

Amir died on 10 March 2026. He made no lifetime gifts. His estate comprised a house worth £450,000, investments of £300,000 and cash of £50,000. He owed debts of £10,000 and funeral costs were £5,000. He left £10,000 to charity, and the house and the rest of the estate to his daughter. Assume the RNRB conditions are met and no NRB was transferred from a spouse. Calculate the IHT on the estate.

Show the solution
  1. Gross estate: £450,000 + £300,000 + £50,000 = £800,000.
  2. Less debts and funeral costs: £10,000 + £5,000 = £15,000. Net estate = £785,000.
  3. Less charity exemption £10,000. Chargeable estate = £775,000.
  4. NRB = £325,000. No gifts, so all is available.
  5. RNRB: the house passes to a descendant. The estate is under £2,000,000, so the RNRB is £175,000. It is below the house value of £450,000, so £175,000 is allowed.
  6. Taxable amount = £775,000 − £325,000 − £175,000 = £275,000.
  7. IHT = £275,000 × 40% = £110,000.

Answer: IHT on the estate is £110,000.

Example 2

Bella died on 1 December 2025. She made two gifts, both after exemptions: a PET of £340,000 to her son on 1 August 2021 and a PET of £100,000 to her niece on 1 February 2023. She had made no other gifts. Her death estate was £600,000, left to friends, so the RNRB is not available. Calculate the IHT payable on the gifts and the estate.

Show the solution
  1. Both PETs are within seven years of death, so they become chargeable.
  2. First PET (1 Aug 2021): NRB available £325,000. Excess = £340,000 − £325,000 = £15,000. Tax at 40% = £6,000.
  3. Time to death: 4 years 4 months, so the taper is 40%. Tax = £6,000 × 60% = £3,600. This is payable by the son.
  4. Second PET (1 Feb 2023): the NRB was used by the first gift in the previous seven years. The whole £100,000 is taxed at 40% = £40,000.
  5. Time to death: 2 years 10 months, so no taper relief. The niece pays £40,000.
  6. Estate: the NRB is fully used by the gifts, so remaining NRB is nil. IHT = £600,000 × 40% = £240,000. The personal representatives pay this.
  7. Total IHT = £3,600 + £40,000 + £240,000 = £283,600.

Answer: The son pays £3,600, the niece pays £40,000 and the estate pays £240,000, a total of £283,600.

Exam tips

  • Always lay out a gifts table first: date, value after exemptions, NRB available, tax, taper, tax payable. The estate is the last line.
  • Taper relief only matters if tax is payable on the gift. If the gift is within the NRB, the taper gives no saving, but it still counts as using the NRB.
  • State the condition for each relief or exemption in a sentence, for example 'home passes to a direct descendant'. These are easy marks in Section C.
  • In objective test questions, check the dates before calculating. A gift made over seven years before death has no effect on the estate.
  • Show the residence nil rate band as a separate line so a marker can see it, even if the answer is nil.

Practice questions from The liabilities arising on chargeable lifetime transfers and on the death of an individual

IHT Calculation on Death and the Death Estate in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

IHT Calculation on Death and the Death Estate: frequently asked questions

How do you calculate IHT on a death estate in TX-UK?

Value the assets at death, deduct debts and funeral costs, then deduct exempt transfers and reliefs. Subtract the NRB remaining after gifts in the previous seven years, and any RNRB. Tax the rest at 40%.

In what order is tax calculated when someone dies within seven years of lifetime gifts?

Gifts are dealt with in date order, earliest first, using the NRB. Failed PETs and CLTs use the NRB first. The death estate gets whatever NRB is left.

Does taper relief reduce the value of the gift?

No. It reduces the tax on the gift. The NRB is still used against the full value, and taper only applies where there is tax to reduce. It starts after three years.

When is the residence nil rate band available?

It is available when the deceased's home, or a replacement, passes to direct descendants on death. It is the lower of the home value and £175,000, and is reduced for estates over £2,000,000. Unused RNRB of a deceased spouse can also be claimed.

Who pays the IHT on the estate and on failed PETs?

The personal representatives pay the tax on the death estate. The recipient of a failed PET normally pays the tax on it.