How Inheritance Tax works: thresholds, rules and allowances

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Passing on a home

You can pass a home to your husband, wife or civil partner when you die. There’s no Inheritance Tax to pay if you do this.

If you leave the home to another person in your will, it counts towards the value of the estate.

If you own your home (or a share in it) your tax-free threshold can increase to £500,000 if:

  • you leave it to your children (including adopted, foster or stepchildren) or grandchildren
  • your estate is worth less than £2 million

Giving away a home before you die

There’s normally no Inheritance Tax to pay if you move out and live for another 7 years.

If you want to continue living in your property after giving it away, you’ll need to:

  • pay rent to the new owner at the going rate (for similar local rental properties)
  • pay your share of the bills
  • live there for at least 7 years

Otherwise it counts as a ‘gift with reservation’ and will be added to the value of your estate when you die. (A gift with reservation is where you give something away but continue to benefit from it.)

You do not have to pay rent to the new owners if both the following apply:

  • you only give away part of your property
  • the new owners also live at the property

If you die within 7 years

If you die within 7 years of giving away all or part of your property, your home will be treated as a gift and the 7 year rule applies.

The 7 year rule does not apply to gifts with reservation.

Further help

Call the Inheritance Tax helpline if you have questions about giving away a home. They cannot give you advice on how to pay less tax.