Inheritance Tax Calculator 2026

Inheritance Tax in 2026

Inheritance tax is charged on the estate of someone who has died. In the UK it's called Inheritance Tax (IHT), charged at 40% above the nil-rate threshold. In the US it's called Estate Tax, with a very high federal exemption of $15 million per person in 2026 — meaning most Americans pay nothing.

UK vs US Inheritance Tax 2026

Why Most Estates Pay Nothing

Inheritance tax generates more anxiety than bills. In the US the federal estate tax exemption is $15,000,000 per person, so the overwhelming majority of estates never come close — the tax applies to a very small fraction of deaths. In the UK the thresholds are far lower, but they still combine into a larger allowance than most people assume.

A UK individual has a £325,000 nil-rate band. If a home passes to direct descendants — children, grandchildren, including step and adopted — the residence nil-rate band adds a further £175,000, giving £500,000. Crucially, anything unused passes to a surviving spouse, so a married couple can reach £1,000,000 between them before 40% applies to the excess.

That transferability is the single most misunderstood part of the system. People frequently plan around £325,000 when the practical figure for a couple with a home is three times larger.

Gifts, the Seven-Year Rule and the Charity Rate

The UK does not tax lifetime gifts directly, but it does look back at them. Most gifts are "potentially exempt": survive seven years from the date of the gift and they fall out of the estate entirely. Die within that window and they are pulled back in, though taper relief reduces the tax on gifts made more than three years before death.

Two details make a large practical difference. First, giving away an asset while continuing to benefit from it — most commonly signing over a house but still living in it rent-free — is treated as a gift with reservation of benefit, and it stays in the estate no matter how many years pass. Second, leaving 10% or more of the net estate to charity reduces the rate on the remainder from 40% to 36%, which can mean the charity receives a substantial sum at a much smaller cost to the other beneficiaries than the headline suggests.

Pensions are the other major planning point: UK pension pots have generally sat outside the estate for inheritance tax, which is why they are often drawn last while other assets are spent first. Rules here have been under active review, so this is one to confirm before acting.

Two Systems That Work in Opposite Directions

The UK and US both tax wealth at death, but the mechanics differ in ways that matter if you have assets in both, or hold citizenship in one and live in the other:

• Who pays. UK inheritance tax is charged on the estate before distribution. US federal estate tax is also on the estate, but several US states levy a separate inheritance tax on the recipient.
• Capital gains treatment. This is the biggest divergence. US heirs generally receive a "stepped-up basis" — the asset is revalued at the date of death, wiping out the accumulated gain. UK beneficiaries receive assets at probate value for CGT, so a later sale is measured from there rather than from the original purchase.
• Scale. The US exemption is roughly thirty times the UK nil-rate band, which is why estate planning is a mainstream concern in the UK and a high-net-worth concern in the US.

Cross-border estates are genuinely complicated — domicile, not just residence, determines UK exposure, and it can persist for years after leaving. If assets sit in more than one country, this is a point to take proper advice on rather than an estimate.

Frequently Asked Questions