Reducing Inheritance Tax: Your Home

When preparing for retirement or for deciding on what you will be leaving behind for your loved ones when you pass away, it’s highly likely that your home will be the most important asset to think about when you’re calculating how much inheritance tax your estate may incur.

At the moment, the current nil-rate band is at £325,000. This increases to £650,000 for married couples. Anything above this threshold would be taxed at 40%.


What are the rules on leaving my home to my children?

You can leave your home to your children free from inheritance tax as long as you live for another 7 years after you do so. This is referred to as a Potentially Exempt Transfer (PET) and may be something you wish to look into sooner rather than later to help mitigate inheritance tax liability.

While it may seem simple, there are actually a few important rules on what you can do when gifting your home to your children when you pass away. For example, if you wish to gift your home to your children while staying in the home yourself, you must then pay rent at the market rate in order to ensure you don’t incur inheritance tax on your home when you pass away, as long as you live for 7 years after you make the gift.

When gifting your home to your children, you can opt to give a portion of it away to help reduce inheritance tax liability if you still wish to live at home. This would mean you and your children would have to split the household bills evenly, meaning just half your home would be subject to IHT (providing you, again, pass away 7 years after making the gift).

It’s also important to ensure that you gift your home to your children without benefiting from the gift as a result. If you do, for example you continue to live in the home, inheritance tax will still be incurred on it.

What next?

If you’re looking to cut down your inheritance tax without spending your money or giving it away, there are other options that are available to you.

If you’re interested in finding out more about reducing inheritance tax, talk to our financial advice team. Please call us on 01926 492406 or email us at to make an appointment.