How the tax is worked out

Every calculator on the site calls one engine, a set of pure functions fed by a single parameter file. No amount is typed into a page: each figure on the site is either a parameter read on an official source or a result of the engine. The file was last checked against its sources on 19 October 2026. Each estate is computed twice, once as if the death happened before 6 April 2027 and once on or after that date; the only difference between the two runs is whether the pension is in the estate.

1. The estate

Home, savings and other assets, less debts, make the free estate. From 6 April 2027, the unused pension is added as notional pension property under section 150A of the Inheritance Tax Act 1984 (Finance Act 2026, section 66: new section 150A IHTA 1984, pension interests treated as part of the estate, Finance Act 2026, section 71: deaths on or after 6 April 2027). Excluded benefits, such as death in service and dependants' scheme pensions, are never added. Before that date the pension is assumed to be paid at the scheme's discretion and outside the estate, which is the case for most pots but not for some public sector schemes that were already non-discretionary.

2. Exemptions

The share of the free estate and of the pension left to a spouse or civil partner is exempt, and so is the share left to charity (Finance Act 2026, section 69: spouse, charity and other exemptions applied to pension benefits). The calculator offers three cases for a married person: everything to the spouse, the estate to the spouse and the pension to the children, or everything to the children.

3. The bands

Nil-rate band £325,000, increased by the percentage left unused at the death of a late spouse, up to double (GOV.UK, How Inheritance Tax works: thresholds, rules and allowances, HMRC, Transferring unused residence nil rate band for Inheritance Tax). Lifetime gifts in the 7 years before death use it first. Residence band £175,000, also transferable as a percentage, available only when the home goes to direct descendants, capped at the value of the home inherited, and reduced by £1 for every £2 by which the estate, after debts and before exemptions and reliefs, exceeds £2,000,000: a single person's band is gone at £2,350,000 (HMRC, Work out and apply the residence nil rate band for Inheritance Tax). Because the pension is in the estate from 6 April 2027, it counts for the taper. Both bands are frozen to 2030/31 (Finance Act 2021, section 86 as amended: no indexation of the nil-rate bands up to 2030 to 2031, Finance Act 2026, section 72: rate bands frozen for 2030 to 2031).

4. The rate and how it is shared

The chargeable estate above the bands pays 40 %, or 36 % when the charity gift is at least 10 % of the baseline amount: the estate after exemptions, less the nil-rate band left (not the residence band), plus the charity gift (HMRC Inheritance Tax Manual IHTM45009: reduced rate for gifts to charity, the baseline amount). The engine treats the whole estate, pension included, as one general component, as HMRC's technical note says notional pension property belongs to it. The tax is then shared over the chargeable estate at its average rate, so the pension bears tax in proportion to its value. Gifts above the nil-rate band pay 40 % reduced by taper relief when made 3 to 7 years before death (GOV.UK, Inheritance Tax: rules on giving gifts, the 7 year rule and taper relief).

5. The heirs' income tax

Member aged 75 or over at death: each heir's share of the pension, less the inheritance tax it bore, is added to the heir's other income and taxed at 2026/27 rates, spread over the number of tax years chosen (Finance Act 2026, section 70: income tax deduction for inheritance tax paid on pension death benefits, GOV.UK, Tax on a private pension you inherit). The Personal Allowance of £12,570 is reduced by £1 for every £2 above £100,000. England, Wales and Northern Ireland: 20 %, 40 %, 45 %. Scotland, by total income with the standard allowance: 19 % to £16,537, 20 % to £29,526, 21 % to £43,662, 42 % to £75,000, 45 % to £125,140, 48 % above (GOV.UK, Income Tax in Scotland: 2026 to 2027 rates). Member under 75: no income tax, except on the part of the lump sums above the lump sum and death benefit allowance of £1,073,100, tested net of inheritance tax, and less tax-free cash taken in life. The allowance is assumed unused unless you enter what was taken.

6. What each heir keeps

What does not go to a spouse or a charity is shared equally between the heirs: the free estate after its share of inheritance tax, and the pension after its share and the income tax. Lifetime gifts are not added to what the heirs receive.

7. Tests

Run on every build, with the source of each case: the GOV.UK estate of £500,000 which pays £70,000; HMRC's residence band examples, including a flat worth £100,000 that caps the band at that value; the taper reaching zero at £2,350,000; the IHTM45010 example of a £750,000 estate with £50,000 to charity which pays £135,000 at 36 %; GOV.UK's gifts example, where a gift of £100,000 above the band made three to four years before death pays £32,000; a £60,000 pot giving £15,000 tax free; the combined 67 % of the additional rate case. A failing test stops the build.

8. What is not modelled

• business and agricultural property relief, trusts, life insurance written in trust and gifts with reservation;
• the downsizing addition to the residence band, and the residence band of a home with a mortgage, for which the full value of the home is used;
• several charitable components, quick succession relief and foreign assets;
• annuity guarantees and value protection, and scheme rules that pay benefits other than as a lump sum or drawdown;
• growth of the pension between death and payment, interest on late payment.

Method version: 2026-10-19. A figure that looks wrong: contact.