How much Inheritance Tax is charged on a home depends on how the person who died owned it and how they passed it on.
Passing on a home as a gift
If a person passed on their home to their children (or someone else) before they died, it’s treated as a gift and the 7-year rule applies.
But if they continued to live in it rent-free, their estate has to pay Inheritance Tax on the home even if they lived for 7 years after giving it away. This is known as a ‘gift with reservation of benefit’.
Giving away the home and moving out
The original owner can make social visits and stay for short periods in a home they’ve given away without affecting the 7-year rule.
Giving away part of the home to someone who moves in
If a person gave away half their home to their children (or someone else), who moved in and shared the bills, the half given away won’t be included in the valuation of the estate.
Giving away the home and living in it
If the original owner lives in the home after giving it away, they must pay the new owner a ‘market rent’ (the going rate for similar local rental properties).
Selling a home and giving away the money
If someone sold their home and gave the money to their children (or someone else) the money will be treated as a gift and the 7-year rule will apply.
If they bought a new home as a joint owner with one or more others, the home may count as a ‘pre-owned asset’ and there may be Income Tax to pay on it.
Contact the probate and Inheritance Tax Helpline for more information about Inheritance Tax and other taxes if you’re planning to sell or give away your home.
Leaving a home in a will
When a home was wholly owned by the person who died, the value of the whole home is included in the estate for Inheritance Tax purposes.
When a home was owned by more than one person, only the share owned by the person who died is included in the estate for Inheritance Tax purposes.
Passing on a home to a husband, wife or civil partner
A widow, widower or bereaved civil partner automatically inherits the deceased’s share of the house if they owned the home as ‘joint tenants’. There’s no Inheritance Tax if they continue to live in it.
If they owned the home as ‘tenants in common’, each can pass on their share of the home to anyone else in their will.
If someone gives away a home that isn’t their main home, they may have to pay Capital Gains Tax if the value of it has increased since they first owned it.