Do I pay inheritance tax on my house?

Your house is part of your estate for IHT purposes. If the total estate (including the house) exceeds the nil-rate band and residence nil-rate band, IHT is payable at 40% on the excess. The RNRB provides additional allowance for main residences passed to descendants. The family home is treated as part of the estate for IHT purposes. The IHT treatment depends on the total value of the estate and the available allowances: (1) The standard nil-rate band of £325,000 applies to the entire estate, including the house. (2) The residence nil-rate band of up to £175,000 provides additional allowance when the main residence is passed to direct descendants. (3) If the total estate (including the house) exceeds the combined allowances (£500,000 for an individual, £1 million for a married couple), IHT is payable at 40% on the excess. (4) The RNRB tapers away for estates above £2 million. For many homeowners, especially in London and the South East, the house alone exceeds the nil-rate band, meaning IHT is likely to be payable. Relevant legislation: Inheritance Tax Act 1984, Section 5 (chargeable estate); Sections 8D-8F (residence nil-rate band). Example: An individual owns a house worth £600,000 and has other assets of £100,000, total estate £700,000. The nil-rate band is £325,000 and the RNRB is £175,000 (assuming the house is passed to descendants and the estate is below the taper threshold). Total allowance: £500,000. IHT is charged on £200,000 at 40% = £80,000. Common mistake: Assuming that the house is exempt from IHT. It is part of the estate and subject to IHT above the allowances, unless specific reliefs apply.

Does the residence nil-rate band apply to buy-to-let properties?

No. The RNRB only applies to a main residence passed to direct descendants. Buy-to-let and investment properties do not qualify for the RNRB and are treated as part of the general estate. The residence nil-rate band (RNRB) only applies to a 'main residence' — the property that was the deceased's home. Investment properties, second homes, and buy-to-let properties do not qualify for the RNRB, regardless of who they are passed to. These properties are treated as part of the general estate and are subject to IHT at 40% above the standard nil-rate band (£325,000). This means that a portfolio of buy-to-let properties can generate a significant IHT bill. However, if the properties are held as part of a property rental business that qualifies for Business Property Relief (BPR), some or all of the value may be exempt. HMRC's approach to BPR for property rental businesses is strict — the business must be 'wholly or mainly' trading, and the level of services provided (not just rent collection) is considered. From April 2026, the £2.5 million cap on 100% BPR/APR will apply. Relevant legislation: Inheritance Tax Act 1984, Sections 8D-8F (RNRB — main residence only); Sections 104-113 (BPR for property rental businesses). Example: An individual owns a main residence worth £400,000 and two buy-to-let properties worth £300,000 each, total estate £1 million. The RNRB of £175,000 applies to the main residence (if passed to descendants). The buy-to-let properties do not qualify for the RNRB. Total allowance: £325,000 (NRB) + £175,000 (RNRB) = £500,000. IHT is charged on £500,000 at 40% = £200,000. Common mistake: Assuming that any property qualifies for the RNRB. It only applies to the main residence, and only when passed to direct descendants. Buy-to-let properties and second homes do not qualify.

How does joint ownership of property affect IHT?

Property owned as joint tenants passes automatically to the surviving owner, while property owned as tenants in common passes according to the will. The ownership structure affects IHT planning and how the property is treated on death. The way property is owned affects how it is treated for IHT: (1) Joint tenants — the property is owned jointly, and on the death of one owner, the entire property passes automatically to the surviving owner (right of survivorship). The deceased's share is part of their estate for IHT purposes, but if the surviving owner is a spouse, the spouse exemption applies. For non-spouse joint tenants, the deceased's share is subject to IHT. (2) Tenants in common — each owner holds a distinct share (e.g., 50/50), and on death, the share passes according to the will (or intestacy rules). This allows each owner to leave their share to chosen beneficiaries, which is useful for IHT planning (e.g., leaving a share to children to use the nil-rate band). The choice between joint tenancy and tenants in common should be made with IHT planning in mind. For married couples, joint tenancy means the entire property passes to the surviving spouse (spouse exemption), which may waste the first spouse's nil-rate band. Tenants in common allows each spouse to leave their share to children (up to the nil-rate band), potentially saving IHT on the second death. Relevant legislation: Inheritance Tax Act 1984, Section 5 (chargeable estate); Trusts of Land and Appointment of Trustees Act 1996 (joint ownership). Example: A married couple owns a £800,000 home as joint tenants. On the first death, the entire property passes to the surviving spouse (spouse exemption, no IHT). On the second death, the estate includes the £800,000 property. If they owned as tenants in common, the first spouse could leave their £400,000 share to their children (within the nil-rate band, no IHT), and the surviving spouse's estate would be £400,000. The overall IHT position depends on the total estate and allowances. Common mistake: Not considering the ownership structure of jointly-owned property for IHT planning. Changing from joint tenants to tenants in common (severance of joint tenancy) can be a simple and effective IHT planning step.

How can I reduce IHT on my property?

Strategies to reduce IHT on property include: using the RNRB effectively, lifetime gifting (with the 7-year rule), downsizing, using equity release, and considering trust structures. The right approach depends on your circumstances. There are several strategies to reduce IHT on property: (1) Use the RNRB effectively — ensure the main residence is passed to direct descendants to qualify for the RNRB. (2) Lifetime gifting — gift the property (or a share) to children, but be aware of the 7-year rule and the gift-with-reservation-of-benefit rules (you cannot continue to live in the property rent-free). (3) Downsizing — sell the larger home and buy a smaller one, gifting the surplus to children. The downsizing provisions may preserve the RNRB. (4) Equity release — use equity release to access the property's value and gift it to children (subject to the 7-year rule). (5) Trust structures — transfer the property to a trust (subject to IHT charges on trusts). (6) Business Property Relief — if the property is part of a qualifying trading business (e.g., a furnished holiday let business that provides substantial services), BPR may be available. The right strategy depends on the property value, the family circumstances, and the donor's age and health. Specialist advice is essential. Relevant legislation: Inheritance Tax Act 1984 (various provisions); Finance Act 1986, Section 102 (gift with reservation of benefit). Example: An individual owns a home worth £800,000. They downsize to a £400,000 property and gift £400,000 to their children. If they survive 7 years, the gift is exempt from IHT. The downsizing provisions may preserve the RNRB for the remaining property. The estate is reduced from £800,000 to £400,000, potentially eliminating the IHT bill. Common mistake: Gifting the property but continuing to live in it rent-free. This is a 'gift with reservation of benefit' and the property remains in the estate for IHT purposes. To avoid this, the donor must pay market rent to the new owner.

What happens if I cannot pay the IHT on my property?

IHT must be paid before probate is granted, which can create cash flow problems for property-rich estates. Options include: life insurance written in trust, an IHT loan, or the instalment option for IHT on property (annual payments over 10 years with interest). One of the challenges of IHT on property is that the tax must be paid before probate is granted (before the property can be sold). This creates a 'cash flow problem' for families who are asset-rich (property) but cash-poor. The IHT on property can be substantial, and families may need to find the funds quickly. Options include: (1) Life insurance written in trust — the policy pays out on death, providing funds to pay the IHT. The policy must be written in trust so the payout is outside the estate. (2) IHT loan — a short-term loan from a bank or specialist lender, secured against the property, to pay the IHT. The loan is repaid when the property is sold. (3) Instalment option — for IHT on certain types of property (including land and buildings), the IHT can be paid in annual instalments over 10 years, with interest. This is useful for estates where the property is not being sold immediately. (4) Payment from the estate's liquid assets — if the estate has sufficient cash or investments, these can be used to pay the IHT before the property is sold. Planning ahead (e.g., with life insurance) is the best approach. Relevant legislation: Inheritance Tax Act 1984, Section 227 (instalment option); Section 229 (interest on unpaid tax). Example: An individual dies with a £1 million property and £50,000 in cash. The IHT bill is £200,000. The estate does not have enough cash to pay the IHT. The family takes out an IHT loan of £200,000, secured against the property. The property is sold for £1 million, and the loan is repaid. Alternatively, the family could use the instalment option to pay the IHT over 10 years (with interest) if they want to retain the property. Common mistake: Not planning for the IHT cash flow problem. Many families are forced to take expensive short-term loans or sell assets quickly at a discount to pay the IHT bill. Life insurance written in trust is a simple and cost-effective solution.

Can I gift my house to my children and continue living in it?

You can gift your house to your children, but if you continue living in it rent-free, it is a 'gift with reservation of benefit' and the house remains in your estate for IHT purposes. You must pay market rent to the new owners. The 'gift with reservation of benefit' (GWROB) rules prevent people from giving away assets while continuing to benefit from them. If you gift your house to your children but continue living in it rent-free, the gift is ineffective for IHT purposes — the house remains in your estate. To make the gift effective, you must: (1) Pay market rent to the new owners (your children). The rent must be at a commercial rate and must actually be paid. (2) Alternatively, move out of the property. The GWROB rules are strictly applied by HMRC, and arrangements where the donor continues to live in the property without paying rent are ineffective for IHT. However, there is an exception: if the donor moves out but later needs to move back in due to unforeseen circumstances (e.g., deteriorating health), the gift may still be effective. The GWROB rules are complex, and specialist advice is essential before gifting a property that the donor intends to continue living in. Relevant legislation: Finance Act 1986, Section 102 (gift with reservation of benefit); Inheritance Tax Act 1984 (various provisions). Example: A parent gifts their £600,000 house to their child and continues living in it rent-free. Under the GWROB rules, the house remains in the parent's estate for IHT purposes. If the parent pays market rent to the child (e.g., £2,000 per month), the gift is effective, but the child will pay income tax on the rental income. The parent must also survive 7 years for the gift to be fully exempt from IHT. Common mistake: Gifting the house and continuing to live in it rent-free, assuming the gift removes the house from the estate. The GWROB rules mean the house remains in the estate unless market rent is paid or the donor moves out.

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IHT on Property & Estates

Property is the most common asset caught by IHT. Understand how IHT applies to homes, investment properties, jointly-owned property, and how to plan for property wealth.

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Property is the asset most commonly caught by inheritance tax. With UK property values having risen significantly since the nil-rate band was last set in 2009, many families now find their homes alone exceed the IHT threshold. Understanding how IHT applies to different types of property, and how to plan for property wealth, is essential for effective estate planning.

IHT on the Family Home

The family home is the most common asset caught by IHT. The residence nil-rate band provides up to £175,000 of additional allowance when the home is passed to direct descendants, but this tapers away for estates above £2 million. For London and South East homeowners, where property values are high, the family home alone can push the estate well above the IHT threshold. Planning strategies include lifetime gifting (with the 7-year rule), downsizing, and using the RNRB effectively.

IHT on Buy-to-Let and Investment Property

Buy-to-let and investment properties do not qualify for the residence nil-rate band (which only applies to a main residence passed to descendants). They are treated as part of the general estate and are subject to IHT at 40% above the nil-rate band. However, if the properties are held as part of a property rental business, Business Property Relief may be available — though HMRC's approach to BPR for property rental businesses is strict and the business must be 'wholly or mainly' trading.

Jointly-Owned Property

Property owned as joint tenants passes automatically to the surviving owner (right of survivorship), regardless of the will. Property owned as tenants in common passes according to the will (or intestacy rules). The ownership structure affects IHT planning: joint tenancy means the entire property is in the surviving spouse's estate (spouse exemption applies on the first death), while tenants in common allows each owner to leave their share to chosen beneficiaries.

Paying IHT on Property

One of the challenges of IHT on property is that the tax must be paid before probate is granted, which means before the property can be sold. This can create cash flow problems for families who are asset-rich but cash-poor. Solutions include: life insurance written in trust, arranging an IHT loan, or using the 'instalment option' for IHT on property (which allows IHT to be paid in annual instalments over 10 years, with interest).

Key Points

What You Need to Know

The family home is the most common asset caught by IHT
The RNRB provides additional allowance for main residences passed to descendants
Buy-to-let properties do not qualify for the RNRB
Joint tenancy vs tenants in common affects how property passes and IHT planning
IHT must be paid before probate, creating cash flow challenges for property-rich estates

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Inheritance Tax Frequently Asked Questions

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Nil-Rate Band & Residence Nil-Rate Band Business Property Relief (BPR)April 2026 IHT Changes Agricultural Property Relief (APR)Lifetime Gifting & the 7-Year Rule Trusts & Inheritance Tax IHT for Married Couples IHT on Property & Estates IHT for Business Owners IHT Exemptions & Reliefs IHT on Foreign Assets IHT Planning Strategies IHT Rate & Calculation

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