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, how to value the home, what happens to jointly owned and mortgaged homes, how trusts and overseas property are treated, 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. The freeze was set to run to 5 April 2030 and was extended by a further year at Budget 2025, legislated in Finance Bill 2025–26 (gov.uk – Inheritance Tax nil-rate band and residence nil-rate band thresholds from 6 April 2026 to 5 April 2028).
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.
The home must have been lived in
The RNRB applies only to a home the deceased owned and lived in at some point (gov.uk – Check if you can get an additional Inheritance Tax threshold). A property they owned but never lived in, such as a buy-to-let held purely for rental income, does not qualify. Where someone owned more than one home they had lived in, the executors can nominate which property the allowance applies to. The home does not have to be in the UK. It does, however, need to fall within the scope of inheritance tax and form part of the estate.
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 |
A point that catches many people out: the RNRB is capped at the value of the home or £175,000, whichever is lower. If the share of the home passing to direct descendants is worth £150,000, the RNRB available on that death is £150,000, not £175,000. The standard nil-rate band still applies to the rest of the estate in the usual way.
How the two bands stack
The standard NRB and the RNRB are separate allowances that stack on top of one another. The NRB can be set against any asset in the estate. The RNRB can only be set against the value of a qualifying home that passes to direct descendants. For a single person leaving a £450,000 home to their children with £80,000 in savings, the £175,000 RNRB covers part of the house and the £325,000 NRB covers the rest of the house plus the savings, leaving an estate of £530,000 fully sheltered.
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. The taper is based on the value of the estate before reliefs such as agricultural or business property relief are applied, so a large but relief-heavy estate can still lose the RNRB.
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 – Claim the residence nil rate band).
Downsizing addition
If the deceased sold their home or moved to a less valuable property after 8 July 2015, their estate may still claim the full RNRB through the downsizing addition (gov.uk – Claim the residence nil rate band). This protects families who sensibly moved to a smaller home in later life, or sold up to move into care, from losing the allowance. The replacement assets passing to direct descendants must be worth at least as much as the lost RNRB, and the claim is made on form IHT435.
How to value a property for inheritance tax
Getting the valuation right matters more than almost any other step. It sets the inheritance tax figure now and the capital gains tax base cost for the future, and an inaccurate figure can mean penalties.
The open market value standard
HMRC requires the open market value at the date of death. This is defined in section 160 of the Inheritance Tax Act 1984 as the price the property might reasonably be expected to fetch if sold on the open market at that time (legislation.gov.uk – Inheritance Tax Act 1984, section 160). It is not the asking price, the insurance value or a quick-sale price. It assumes a willing seller and a reasonable marketing period.
Estate agents, surveyors and the District Valuer
How formal a valuation you need depends on the size of the estate (gov.uk – Valuing the estate of someone who’s died):
- For smaller estates where inheritance tax is clearly not in question, an average of three estate agent valuations is normally acceptable. Keep the written quotes on file.
- For estates where the home pushes the total over the IHT threshold, you should obtain a formal written valuation from a RICS registered valuer (a chartered surveyor working to the RICS Red Book). HMRC is far less likely to challenge a Red Book valuation than an estate agent’s letter.
HMRC has its own valuation arm, the Valuation Office Agency, whose surveyor is known as the District Valuer. If HMRC believes a property has been undervalued, the District Valuer reviews it and can negotiate a higher figure. Settling a value with the District Valuer is a normal part of estate administration for larger properties, and a RICS report gives the executor evidence to support the figure they submitted.
Why undervaluation is a false economy
Deliberately understating a property value to reduce inheritance tax is a serious risk. HMRC can charge penalties for an inaccurate account, and an artificially low probate value increases the capital gains tax the beneficiaries pay when they eventually sell, because the gain is measured from that lower base cost. An accurate figure, supported by professional evidence, protects the estate on both fronts.
How long you have
There is no fixed deadline to agree the value with HMRC, but inheritance tax is due six months after the end of the month of death, so the valuation needs to be in hand well before then. If a value is later agreed at a different figure with the District Valuer, the tax is adjusted accordingly.
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.
How to find out which applies
Check the title register at the Land Registry. If the register includes a Form A restriction, the property is held as tenants in common. If there is no such restriction, the owners are usually joint tenants. The register costs a few pounds to download and is the definitive record. See joint tenants vs tenants in common on death for how each form affects probate, the will and the survivor.
The forms and the part-share discount
The deceased’s interest in a jointly owned property is reported on form IHT404 (jointly owned assets), with the property itself described on form IHT405 (houses, land, buildings and interests in land) (gov.uk – Inheritance Tax: jointly owned assets (IHT404)). A share in a property is usually harder to sell than the whole, so HMRC may accept a discount on the deceased’s share to reflect this, commonly in the region of 10% to 15% where the co-owner is not a spouse. The discount is not automatic and the District Valuer may negotiate it.
Mortgaged property and equity release
A debt secured on the property is deducted from its value when working out inheritance tax (gov.uk – How Inheritance Tax works). If the home is worth £400,000 with a £120,000 mortgage outstanding, the net value brought into the estate is £280,000. Any mortgage interest accrued and unpaid to the date of death is also deductible.
Two situations change the picture:
- Mortgage protection or life cover. If a life insurance or mortgage protection policy pays off the outstanding balance on death, the debt is cleared by the policy and the property is valued without the deduction. Whether the policy proceeds themselves fall into the estate depends on whether the policy is written in trust.
- Equity release (a lifetime mortgage). The outstanding loan, including rolled-up interest accrued to the date of death, is deducted from the property value. Equity release can reduce an estate substantially over time, which is sometimes part of the reason people take it out, though it is an expensive way to reduce inheritance tax and advice is essential.
Property held in trust
Where a home is held in trust, the inheritance tax treatment depends on the type of trust.
The most common scenario after a death is an immediate post-death interest (IPDI), set up by a will to give someone, often a surviving spouse, the right to live in the home for life. Under an IPDI, the life tenant is treated for inheritance tax as if they owned the trust property outright, so the home is included in their estate when they die (gov.uk – Trusts and Inheritance Tax). Importantly, the RNRB can still apply to a home in an IPDI, provided the property passes to the life tenant’s direct descendants when the interest ends. This makes the IPDI a widely used way to protect a surviving spouse while keeping the family home available to the children and preserving the property allowance.
Other trust types, such as discretionary trusts holding a property, are taxed under the separate relevant property regime, with their own periodic and exit charges, and they generally do not qualify for the RNRB. Trusts are a specialist area and the inheritance tax consequences vary widely, so take advice before setting one up or administering one.
Agricultural and business property
Some property qualifies for relief that can remove most or all of the inheritance tax charge.
Agricultural Property Relief (APR). Farmland, farm buildings and farmhouses occupied for agriculture may qualify for relief at up to 100% of their agricultural value, provided they meet the occupation and use tests (gov.uk – Agricultural Relief for Inheritance Tax). A farmhouse only qualifies to the extent it is of a character appropriate to the land and occupied for the purposes of agriculture, so a large house with a small paddock will not attract relief on the whole value. APR covers the agricultural value only; any development or amenity value above that is not relieved by APR.
Business Property Relief (BPR). A property that forms part of a qualifying trading business – for example a holiday-letting business or a guest house run with significant services – may qualify for business property relief. Property held purely as an investment, such as let residential or commercial property held for rental income, does not qualify.
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 level reduced to 50%, under reforms legislated following the Autumn Budget 2024 (gov.uk – Budget 2025 Overview of tax legislation and rates). Farms and family businesses worth more than £1 million should review their position with a specialist.
Heritage property. Buildings of outstanding historic or architectural interest, and land of outstanding scenic, historic or scientific interest, can be granted conditional exemption from inheritance tax in return for undertakings to preserve the asset and provide public access (gov.uk – Tax relief for national heritage assets). The exemption is conditional: if the undertakings are broken or the asset is sold, the deferred tax becomes payable.
Overseas property
Whether a property abroad is within the scope of UK inheritance tax now turns on residence, following a major reform that took effect on 6 April 2025. A person who has been resident in the UK for at least 10 of the previous 20 tax years is a long-term resident, and their worldwide assets, including overseas property, fall within UK inheritance tax (gov.uk – Budget 2025 Overview of tax legislation and rates). This residence-based test replaced the old concept of domicile for inheritance tax.
Foreign property is reported on form IHT417 (foreign assets) (gov.uk – Inheritance Tax: foreign assets (IHT417)). Where the country in which the property sits also charges a death tax, double taxation relief usually prevents the same asset being taxed twice in full: either a double taxation treaty applies, or the UK gives unilateral credit for the foreign tax paid. The effective rate ends up being the higher of the two countries’ rates rather than the sum of both. Overseas property is one of the more error-prone parts of an inheritance tax account, so take specialist advice where it is involved.
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.
Redirecting a property with a deed of variation
After a death, the people who inherit can change who receives what by signing a deed of variation within two years of the death (gov.uk – How Inheritance Tax works: gifts). If the deed meets HMRC’s conditions, the redirected gift is treated as if the deceased had made it, so it does not count as a gift from the original beneficiary, who therefore does not need to survive seven years for it to be effective.
For property this is a useful tool. An adult child who inherits the family home but does not need it might redirect it, or a share of it, to their own children, skipping a generation and saving inheritance tax in their own estate later. A deed of variation can also be used to direct a gift to charity and bring the estate’s charitable giving up to the 10% level that cuts the IHT rate from 40% to 36%. The changes are notified to HMRC using the IOV2 checklist. All beneficiaries who lose out under the variation must agree to it in writing.
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
- The first instalment carries no interest if paid on time, but interest is charged on the outstanding balance for the later instalments (gov.uk – Pay Inheritance Tax in yearly instalments)
- The interest-free treatment for the outstanding balance applies to assets qualifying for agricultural or business relief (for assets inherited from 6 April 2026), not to an ordinary family home
- 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.
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 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 claim the full RNRB through the downsizing addition (gov.uk – Claim the residence nil rate band). This protects families who moved to a smaller home in later life from losing the allowance. The claim is made on form IHT435.
Agricultural and business property relief. Working farms and qualifying trading businesses may attract relief of up to 100% on the value of the property, subject to the new £1 million cap from 6 April 2026. See the sections above and the business property relief guide.
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. Obtain an open market value as described above: estate agent valuations for smaller estates, a RICS registered valuer where the home takes the estate over the threshold. Keep the written evidence.
Establish how the property was owned. Download the title register from the Land Registry to confirm whether the deceased owned the property outright, as joint tenants, or as tenants in common, and to identify any mortgage or charge.
Report the property on the right forms. Houses, land and buildings go on form IHT405, alongside the main IHT400 account. Jointly owned property also goes on IHT404. Foreign property goes on IHT417. Many estates that owe no tax can now report through the simpler excepted estates rules rather than the full IHT400.
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, remembering that interest runs on the outstanding balance.
The full process for paying inheritance tax is covered in how to pay inheritance tax.
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.