Tax & Estate 7 min read • March 2026

Your property and inheritance tax: what you need to know

For most UK families, the family home is the largest single asset in the estate — and therefore the biggest factor in whether inheritance tax (IHT) applies. Understanding the two main property-related allowances is essential for anyone planning their estate.

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Not tax or legal advice. IHT rules are complex, subject to change, and depend heavily on individual circumstances. This article explains how the rules generally work. For your estate, consult a qualified solicitor or tax adviser — and check current HMRC guidance at gov.uk/inheritance-tax.

How IHT works: the basics

IHT is charged at 40% on the value of an estate above the available threshold at the date of death. The standard rate is 36% if 10% or more of the net estate is left to charity. Everything below the threshold passes free of IHT.

There is no IHT between spouses or civil partners (provided they are UK domiciled). Assets transferred to a surviving spouse pass free of IHT, regardless of value.

The Nil Rate Band: £325,000

Every individual has a Nil Rate Band (NRB) of £325,000 (frozen at this level until at least April 2030). The first £325,000 of the estate is IHT-free. Above that, IHT at 40% applies unless other reliefs are available.

Transferable NRB: If a spouse or civil partner died without using their full NRB (because they left everything to the surviving partner), the unused portion can be transferred to the surviving partner's estate. This can effectively double the NRB to £650,000 for a couple.

The Residence Nil Rate Band: up to £175,000

The Residence Nil Rate Band (RNRB) provides an additional allowance of up to £175,000 for the family home, but only when it passes to direct descendants — children (including stepchildren and adopted children), grandchildren, or their spouses or civil partners.

To qualify: the deceased must have owned a residential property that was their residence at some point. It must be left to direct descendants. The allowance is capped at the lower of the RNRB amount or the net value of the property.

Combined threshold for a couple leaving the family home to direct descendants: £325,000 NRB + £175,000 RNRB = £500,000 each, or £1,000,000 combined (assuming neither used their NRB and both have unused RNRB).

RNRB taper for larger estates

The RNRB is gradually withdrawn for estates worth more than £2 million. For every £2 by which the net estate exceeds £2 million, the RNRB is reduced by £1. At £2.35 million, the RNRB is fully withdrawn. The NRB is not tapered — only the RNRB.

Gifts from your property: the 7-year rule

Outright gifts made to individuals (called Potentially Exempt Transfers, PETs) fall outside the estate if the donor survives 7 years after making them. If the donor dies within 7 years, taper relief applies: the IHT charge on the gift reduces progressively from 100% within 3 years to 20% after 6–7 years.

A critical rule: if you give away your home but continue to live in it without paying a market rent, it counts as a Gift With Reservation of Benefit (GWROB) and remains in your estate. The gift must genuinely remove the asset from your use.

Moving into care: impact on IHT

If you give away your home and then need to move into care, local authorities may treat the gift as a deprivation of assets if it was made to avoid care costs. This is a separate issue from IHT but often intersects with estate planning. HMRC will include assets in the estate on death regardless of when they were given away if they qualify as GWROBs.

⚠️ April 2027: pension and IHT

The government has proposed bringing unused defined contribution pension pots within the IHT estate from April 2027. This was included in the Finance Bill 2024 and, if enacted, would significantly change the IHT position of anyone with substantial pension savings. As of March 2026 this measure has not yet been enacted. Check HMRC guidance at gov.uk for the current position.