Inheritance Tax Calculators and Tools

When someone leaves gifts in their will "free of tax", working out exactly how much Inheritance Tax is due can become complicated. HMRC provides two specialist calculators to help with these complex situations: one for grossing up calculations when gifts are left free of tax, and another for...

What is grossing up?

When someone dies and leaves a gift in their will "free of tax", this doesn't mean no Inheritance Tax is due. It means the person receiving the gift gets the full amount stated in the will, and any Inheritance Tax owed is paid from the rest of the estate (called the residue).

Grossing up is the process of calculating how much of the estate is actually liable for Inheritance Tax in these situations. You need to use it when two conditions are both met:

Someone who would normally pay Inheritance Tax (a chargeable beneficiary) receives a 'free of tax' gift in the will
The residue of the estate is either partly or completely exempt from Inheritance Tax

When to use the grossing up calculator

HMRC's online grossing up calculator handles two types of calculation:

Simple grossing up – where all gifts are 'free of tax' and the residue is completely exempt from Inheritance Tax

Four-stage grossing up – where some gifts are 'free of tax' and others are not, or all gifts are 'free of tax' but the residue is only partly exempt

When you cannot use the calculator

In more complicated situations, you should not use the calculator yourself. Instead, request that HMRC does the calculation for you. This applies if either of these situations exist:

Successive charges relief (also called quick succession relief) – where Inheritance Tax is reduced because the estate includes assets on which Inheritance Tax has recently been paid

'Benham' grossing – where the will contains specific instructions about how the residue should be divided between chargeable and exempt beneficiaries

In these cases, request the calculation in the additional information box or cover letter when you complete form IHT400.

Information you'll need before starting

Before using the grossing up calculator, gather the following information:

A copy of the will
The total value of the assets and liabilities in the estate
The nil rate band that applies (the Inheritance Tax threshold minus any lifetime gifts)
Whether any transferable nil rate band applies
Whether any residence nil rate band applies
Whether the reduced rate of Inheritance Tax applies (if the estate leaves at least 10% to charity)

How to use the grossing up calculator

The calculator is an online tool that you cannot save midway through. Follow these steps:

1. Collect all your information before you begin

2. Use the calculator online

3. Print the results

4. Post them to HMRC along with your Inheritance Tax account on form IHT400

You cannot save your progress, so make sure you have everything ready before starting.

Special rules: interaction calculations

Interaction rules apply when the estate receives agricultural relief or business relief, and all of the following are true:

The will has at least one specific gift of property
The will includes property subject to tax relief that's not given as a specific gift
Some of the estate is exempt from Inheritance Tax

You can use the calculator when interaction rules apply, but only after manually deducting agricultural or business relief first. Because interaction calculations can become very complicated, HMRC will do them for you if you request this when submitting your return.

The guaranteed annuity calculator

When an estate includes a guaranteed annuity, you need to value it for Inheritance Tax purposes. HMRC provides a separate PDF calculator for this purpose.

To use the guaranteed annuity calculator:

Save the calculator to your device
Open it using Adobe Reader version 9.0 or later
Complete the calculation (this calculator is only for straightforward circumstances)
Attach a completed copy to your IHT400 form

If circumstances change

If something changes after you've submitted your Inheritance Tax account, you can submit a corrective account (form C4) with revised grossing up calculations.

To do this, use the grossing up calculator again, updating any figures that have changed. Print your results and post them with the corrective account.

Getting help with complex calculations

For detailed technical information about grossing up, you can refer to HMRC's Inheritance Tax manual section on 'Calculating the chargeable estate'. However, if your situation involves successive charges relief, Benham grossing, or complicated interaction rules, it's advisable to request that HMRC performs the calculation or seek professional advice.

These calculators are designed to help with specific technical aspects of Inheritance Tax reporting, but they require careful preparation and accurate information about the estate and the terms of the will.

Sources

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.