How to Pass on Your Home During Your Lifetime

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1 day ago
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How to Pass on Your Home During Your Lifetime Without Inheritance Tax?

You can transfer your home to your spouse or civil partner when you pass away without any Inheritance Tax being applied.

However, if you leave the property to someone else in your will, its value will be included as part of your estate for tax purposes.

If you own a home (or a share in one), your tax-free allowance can increase up to £500,000, provided that:

The property is left to your children (including adopted, foster, or stepchildren) or grandchildren
The total value of your estate is below £2 million

To know how Inheritance Tax works click here

Moving out completely

If you give your home away and move out, no IHT is due as long as you live for another 7 years after making the gift.

Staying in the property after gifting it

If you give your home away but continue living there, you must:

Pay rent to the new owner (at the local market rate).
Pay your share of household bills.
Continue this arrangement for at least 7 years.

If you don’t meet these rules, the gift will be treated as a “gift with reservation” — meaning the property’s value is added back to your estate when you die.

👉 Note: If you only give away part of the property and the new owners also live there, rent is not required.

If you die within 7 years

If you pass away within 7 years of giving away your home, it is treated as a gift and may be subject to IHT under the 7-year rule.
The 7-year rule does not apply if the gift is classed as a gift with reservation.

Need help?

If you’re unsure about how these rules apply to you, you can contact the PKPI Chartered Accountants Inheritance Tax helpline for guidance. However, they cannot advise on tax planning strategies to reduce your bill.

To know more in details click here

FAQs on Passing on a Home and Inheritance Tax (UK)

1. Do I pay Inheritance Tax if I leave my home to my spouse or civil partner?

No. If you leave your home to your husband, wife, or civil partner, there is no Inheritance Tax to pay. The property passes on tax-free.

2. Can my Inheritance Tax threshold increase if I leave my home to children or grandchildren?

Yes. Your tax-free allowance can rise from £325,000 to £500,000 if you leave your home to your direct descendants (children, stepchildren, adopted or foster children, or grandchildren) and your estate is worth less than £2 million.

3. What happens if I give away my home before I die?

If you give away your home and move out completely, there is normally no Inheritance Tax as long as you live for 7 more years. This is known as the 7-year rule. If you die within 7 years, the gift may be taxed.

4. What is a ‘gift with reservation’ in Inheritance Tax?

A gift with reservation happens when you give away your home but still benefit from it, for example, by continuing to live there without paying full market rent. In this case, the property will still be counted as part of your estate for Inheritance Tax purposes.

5. Do I have to pay rent if I keep living in my home after gifting it?

Yes, unless you only transfer part of the property and the new owner also lives there. To avoid the property being treated as a gift with reservation, you must:

Pay rent at the going market rate.
Share household expenses fairly.
Continue this arrangement for at least 7 years.

“Plan smarter for your family’s future. Speak to PKPI Chartered Accountants today and ensure your home is passed on tax-efficiently. Contact us at pkpi.uk or call us at +44 2079 418160”