Inheritance Tax Calculator UK 2020/21
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14-04-2020
Inheritance tax is a tax paid on the value of your estate – essentially all taxable assets you own, such as most property, possessions and funds in bank accounts etc. – after you pass away.
Inheritance tax is calculated at 40% on all assets over what’s known as your nil-rate band threshold of £325,000. If as a single individual you own assets worth more than £325,000, you may have to pay inheritance tax on everything over and above this.
If you’re passing on your main home to direct descendants (children, grandchildren, great-grandchildren, stepchildren etc.), there’s also a separate allowance or threshold known as the main residence nil-rate band that impact the inheritance tax calculations.
The main residence nil-rate band was introduced in the 2017/18 tax year and initially stood at £100,000. It will rise each year until the 2020/21 tax year, when it will stand at £175,000. Thereafter, it will rise with inflation.
The main residence nil-rate band is available to be applied to all estates worth less than £2 million. For estates worth more than this, the nil-rate band tapers down by £1 for each £2 over this threshold.
UK Tax Year | Value of Residence Nil-Rate Band |
|---|---|
2017/18 | £100,000 |
2018/19 | £125,000 |
2019/20 | £150,000 |
2020/21 | £175,000 |
2021/22 onwards | Rises in line with CPI inflation |
This means that by 2020/21, a single individual passing on their main residence as part of their estate will have an inheritance tax-free threshold of £500,000. Any taxable assets above this will face inheritance tax at 40%.
Calculating Inheritance Tax
In order to calculate the inheritance tax liability that your estate will attract from the start of the 2020/21 tax year, you’ll need to:
- Calculate the value of everything you own (your ‘estate’)
This includes cash in the bank / taxable investments, your main residence / any other properties, jewellery, cars, furniture, payments made on death (e.g. Life Insurance payouts not written into trust) etc. - Deduct your £325,000 nil-rate band (NRB) allowance
If you’re a widow(er) and a spouse / civil partner has died before you, or you’re passing on your main residence to direct descendant(s), this threshold could be higher (see above) - Deduct any debts
Mortgages, overdrafts, loans, credit cards, payments due for services rendered while the individual was alive etc.
If this sounds complicated, don’t worry – it can be! That’s why we’ve built our Inheritance Tax Calculator below. Simply enter your assets and your liabilities and answer the rest of the questions to calculate your potential inheritance tax bill.
How is Inheritance Tax Calculated?
To summarise…
- To calculate inheritance tax you work out 40% on all taxable assets over and above your tax-free allowances (e.g. the nil-rate band and residence nil-rate band).
- You can pass these allowances to your spouse / civil partner providing you make a will to leave everything to them on your death, potentially up to doubling the allowances you have before inheritance tax is due for the surviving partner.
- Not all assets are taxable for inheritance tax purposes: for example, agricultural property relief and business property relief is available on agricultural property and most businesses or shares in most businesses. Seek expert advice about such assets.
- You can deduct liabilities owed at the date of death, such as loans, mortgages, credit cards etc.
Inheritance Tax Advice
If you’re struggling to calculate how much inheritance tax you’ll pay, you’re not alone. It’s not a simple calculation, as you may have seen above!
Our Inheritance Tax Calculator is a good place to start but it’s no substitute for an expert’s advice. Our experts will work with you to understand your specific circumstances and based on their knowledge of inheritance tax will be able to make recommendations as to the best way to minimise the inheritance tax bill for your loved ones.
If you would like to discuss your options with one of our experts please do not hesitate to give us a call on 02084327334 or email help@drewberry.co.uk.
- You’ll speak to a dedicated expert from start to finish
You will speak to a named expert with a direct telephone and email. No more automated machines and no more being sent from pillar to post – you’ll have someone to speak to who knows you. - Benefit from our 5-star service
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I had a great experience with Drewberry, they have a lot of knowledge and expertise with life insurance and income protection and were able to advise me and arrange suitable products. Highly recommend.
Lachlan Mellings
12/08/2020
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