For most UK families, the home is the largest asset in an estate. When someone dies, the value of the property they owned is added to everything else they leave behind, and inheritance tax (IHT) is calculated on the total. That sounds alarming, but the system includes generous allowances designed specifically to help families pass the family home to the next generation. A married couple can often pass on up to £1,000,000 without paying any inheritance tax at all.
This guide explains how inheritance tax applies to property in the UK: when it is due, how the residence nil-rate band works, what happens to jointly owned homes, what to do if the only way to pay the bill is to sell, and the legitimate ways to reduce what you owe. Every figure is current for the 2026–27 tax year and sourced from HMRC and gov.uk.
Does property always face inheritance tax?
No. Most estates pay no inheritance tax at all because of two tax-free allowances.
The standard nil-rate band is £325,000 per person (gov.uk – Inheritance Tax overview). On top of that, the residence nil-rate band (RNRB) adds a further £175,000 per person when a main residence is left to direct descendants (gov.uk – Inheritance Tax: residence nil-rate band). Together, an individual can pass on up to £500,000 tax-free, and a married couple or civil partnership can pass on up to £1,000,000 by combining both allowances.
Both thresholds are frozen until 5 April 2031 under the Finance Act 2025 (gov.uk – Inheritance Tax nil-rate band and residence nil-rate band thresholds from 6 April 2026).
Inheritance tax is charged at 40% on the value of the estate above the available threshold (gov.uk – Inheritance Tax overview). The rate falls to 36% if 10% or more of the net estate is left to charity.
In practice this means that a single person leaving a home worth £450,000 to their children, with £40,000 in savings, would owe nothing in inheritance tax. The estate is comfortably under the £500,000 combined threshold. A widow or widower passing on the same estate, having inherited their late spouse’s unused allowances, would have up to £1 million of headroom before any IHT became due.
If you are administering an estate, the first thing to do is add up the total value, then check it against the available nil-rate bands. If the estate is under £500,000 (single person) or £1 million (where the full transferable allowance applies), there will be no inheritance tax to pay.
The residence nil-rate band explained
The residence nil-rate band is the more complicated of the two allowances, but it is the one that does the heavy lifting on property. It exists specifically to help families keep the home in the family.
Who qualifies
The RNRB applies when a residential property is left to direct descendants (gov.uk – Inheritance Tax: residence nil-rate band). HMRC defines direct descendants as:
- Children, including adopted, foster and step-children
- Grandchildren and great-grandchildren
- The spouse or civil partner of a direct descendant
- The widow, widower or surviving civil partner of a direct descendant who has died
Nieces, nephews, siblings and parents do not qualify. If the home is left to anyone outside this list, the RNRB cannot be claimed on the property.
How much it is worth
| Allowance | Per person | Married couple / civil partners |
|---|---|---|
| Standard nil-rate band (NRB) | £325,000 | £650,000 |
| Residence nil-rate band (RNRB) | £175,000 | £350,000 |
| Combined maximum | £500,000 | £1,000,000 |
The taper for larger estates
The RNRB is gradually withdrawn for estates worth more than £2 million. For every £2 the estate is over £2 million, the RNRB is reduced by £1 (gov.uk – Inheritance Tax: residence nil-rate band). At £2.35 million for a single person (or £2.7 million for a couple using both allowances), the RNRB is wiped out entirely.
Transferable between spouses
If the first spouse to die did not use all of their RNRB, the unused percentage transfers to the survivor. The survivor’s executors claim it on form IHT436 when the second death occurs. This is true even if the first death happened before the RNRB was introduced in April 2017 – any spouse who died before that date is treated as having an unused RNRB available for transfer (gov.uk – Inheritance Tax: claim transferable residence nil-rate band (IHT436)).
Jointly owned property
How a property is jointly owned makes a significant difference to how it is treated for inheritance tax. There are two forms of joint ownership in England and Wales.
Joint tenants own the whole property together with no defined shares. When one owner dies, their interest passes automatically to the surviving joint tenant under the right of survivorship. The property does not form part of the deceased’s estate for distribution purposes – it sits outside the will. For inheritance tax, however, the deceased’s share is still valued and added to their estate. If the property passes to a spouse or civil partner, the spouse exemption applies and no IHT is charged on that share (gov.uk – Inheritance Tax: passing on home). If the surviving joint tenant is anyone else – an unmarried partner, a sibling, an adult child – the deceased’s share is taxable in the normal way.
Tenants in common each own a defined share of the property, often 50/50 but sometimes weighted differently. When a tenant in common dies, their share passes according to their will (or under intestacy rules if there is no will). The share forms part of the estate and is valued separately. This structure is commonly used by couples who want to leave their share of the home to children rather than to each other – often part of a deliberate IHT planning strategy.
For the executor, the practical step is to check the title deeds at the Land Registry. The register will state whether the property is held as joint tenants or tenants in common. If the deceased owned a share as tenants in common, that share – usually valued at the market value, with a small discount sometimes applied for the difficulty of selling a part-share – is reported on form IHT405 (houses, land, buildings and interests in land).
What if the property must be sold to pay inheritance tax?
Inheritance tax must usually be paid within six months of the end of the month of death (gov.uk – Pay your Inheritance Tax bill). Interest accrues on unpaid tax after that date. For an estate where most of the value is locked up in property, this is a real practical problem. Selling a house takes time.
HMRC offers an instalment option specifically for property and certain other illiquid assets. The IHT due on the property can be paid in 10 equal annual instalments, with the first payment due six months after the end of the month of death (gov.uk – Pay Inheritance Tax in yearly instalments).
Key points to know about the instalment option:
- It is available for land and buildings, including the deceased’s home and any other property
- The first instalment is one-tenth of the IHT attributable to the property, plus a payment of any IHT on the rest of the estate
- For a home that is being kept by the family (not sold), instalments are interest-free on the unpaid balance for the residential property element (gov.uk – Pay Inheritance Tax in yearly instalments)
- If the property is sold before all instalments are paid, the remaining IHT becomes immediately due
- You opt in to instalments on form IHT400 by ticking the relevant box
Many executors arrange a short-term executor’s loan from a bank to pay the IHT bill, then repay the loan once probate is granted and the property is sold or remortgaged. Most major UK banks offer these facilities. The interest is usually deductible from the estate.
Transfers and gifts of property
Some people give away their home – or a share of it – during their lifetime to reduce inheritance tax. The rules around lifetime gifts of property are strict, and it is one of the areas where well-meaning planning most often goes wrong.
A gift of property is a potentially exempt transfer (PET). If the person who gave the gift survives for seven years from the date of the gift, the value falls outside their estate completely (gov.uk – Inheritance Tax: gifts). If they die within seven years, the gift uses up some or all of their nil-rate band, and IHT may be due on the gift itself on a sliding scale called taper relief.
The trap is the gift with reservation of benefit (GROB) rule. If someone gives away their home but continues to live in it without paying full market rent, HMRC treats the property as still being part of their estate when they die – regardless of how many years have passed since the gift (HMRC – Inheritance Tax Manual: gifts with reservation). The gift is also still a PET, which can produce a double charge that HMRC then has to adjust.
The same applies to a partial gift. Giving half the house to a child while continuing to live there yourself is treated as a reservation of benefit unless the child also lives in the property and shares the running costs equally.
The cleanest way to give property without falling foul of GROB is for the giver to move out, or to pay full market rent (assessed annually) to the new owner. Both have practical and emotional consequences that often make this kind of planning impractical for an elderly homeowner. Speak to a qualified solicitor or chartered tax adviser before considering any lifetime transfer of property.
See the gift rules guide for a fuller explanation of how lifetime giving fits into IHT planning.
How to reduce inheritance tax on property
There are several legitimate ways to reduce or eliminate inheritance tax on property. Some are automatic; others need active planning during the owner’s lifetime.
Spouse and civil partner exemption. Anything left to a UK-domiciled spouse or civil partner passes free of inheritance tax with no upper limit (gov.uk – Inheritance Tax: passing on home). For most married couples, the family home passes to the survivor on the first death without any IHT charge, and the unused nil-rate bands transfer too.
Use both nil-rate bands. A married couple who plan their wills carefully can ensure both the standard NRB and the RNRB are used on each death. With both allowances combined and transferred, up to £1 million of estate value (including the home) can be passed to children IHT-free.
Downsizing addition. If the deceased sold their home or moved to a less valuable property after 8 July 2015, their estate may still be entitled to the full RNRB through the downsizing addition (gov.uk – Inheritance Tax: downsizing). This protects families who moved to a smaller home in later life from losing the allowance. The claim is made on form IHT436.
Agricultural Property Relief (APR). Working farms, farmhouses and farmland may qualify for 100% relief from inheritance tax, provided they meet the strict occupation and use tests (gov.uk – Agricultural Relief for Inheritance Tax). Note that from 6 April 2026, the combined APR and BPR 100% relief is capped at the first £1 million of qualifying assets, with relief above that capped at 50%, under reforms announced in Autumn Budget 2024 and legislated in the Finance Act 2025.
Business Property Relief (BPR). A property that forms part of a qualifying trading business – for example a B&B run as a genuine business with significant services – may qualify for business property relief. Pure investment property (let residential or commercial property held for rental income) does not qualify.
Charitable giving. Leaving 10% or more of the net estate to charity reduces the IHT rate on the rest of the estate from 40% to 36% (gov.uk – Leaving a gift to charity in your will). For larger estates with property well above the threshold, this can save more in tax than the charitable gift itself costs the beneficiaries.
For more options, see the full guide to IHT exemptions and reliefs.
What you need to do as an executor
If you are administering an estate that includes property, here are the practical steps.
Value the property at the date of death. HMRC expects an open market value. For estates where the property pushes the estate over the IHT threshold, you should obtain a written valuation from a RICS-qualified surveyor, or in some cases a formal valuation from the HMRC District Valuer (gov.uk – Valuing the estate of someone who’s died). For smaller estates where IHT is clearly not in question, three estate agent valuations averaged is normally acceptable.
Report the property on the right form. Houses, land and buildings are reported on form IHT405, which sits alongside the main IHT400 account. If the deceased had a beneficial interest in any other land or buildings, that goes on IHT405 too.
Claim the residence nil-rate band. Use form IHT435 to claim the RNRB for the deceased, and form IHT436 to claim any transferable RNRB from a predeceased spouse.
Pay the tax. IHT is due by the end of the sixth month after death. If the property element is to be paid in instalments, tick the box on IHT400 and arrange the first payment.
The full process for paying inheritance tax is covered in how to pay inheritance tax.
Frequently asked questions
Do I have to pay inheritance tax on my parents’ house?
Only if the total estate (property plus everything else) is worth more than the available nil-rate bands. For a parent leaving their home to their children, that is up to £500,000, or up to £1 million if they were widowed and inherited their late spouse’s unused allowances. If the estate is below those figures, no IHT is due on the house.
Can I avoid inheritance tax by gifting the house to my children?
In theory yes, but in practice it is difficult. If the parent continues to live in the house without paying market rent, HMRC treats it as a gift with reservation of benefit and the property remains in the estate for IHT purposes. A clean gift requires the parent to move out completely or pay full rent. Speak to a tax adviser before attempting this.
What happens if there isn’t enough cash to pay the inheritance tax?
You can pay the IHT due on property in 10 annual instalments, interest-free for a residential property kept by the family (gov.uk – Pay Inheritance Tax in yearly instalments). Many executors take out a short-term executor’s loan from the bank, repaid when probate is granted and the property is sold or remortgaged.
Is inherited property subject to capital gains tax when sold?
Inheritance itself is not a capital gains tax (CGT) event. The property’s base cost for CGT purposes is reset to its market value at the date of death (the “probate value”). If beneficiaries sell later for more than that value, CGT may be due on the gain (gov.uk – Capital Gains Tax: inherited assets). This is why obtaining an accurate probate valuation matters even when no IHT is due.
For the wider picture of how inheritance tax works, see the inheritance tax hub, the guide to the nil-rate band, and the detailed residence nil-rate band guide.