For many families in the UK, the family home is their most valuable asset. This means understanding how Inheritance Tax (IHT) applies to property is one of the most important parts of inheritance planning.

A common misconception is that your home is automatically free from Inheritance Tax because it is your main residence. It isn’t. However, qualifying families may be able to benefit from the Residence Nil Rate Band (RNRB), which can provide an additional allowance when a qualifying home is passed to direct descendants such as children or grandchildren.

Does Inheritance Tax apply to your home?

Yes. Your home can form part of your estate for Inheritance Tax purposes.

When someone dies, their estate is generally valued by taking into account their money, property and possessions, together with certain gifts and other interests that may be relevant under the Inheritance Tax rules. HMRC guidance specifically includes property as part of the estate valuation.

The important question isn’t simply “Do I own a house?” Instead, you need to consider:

• How much the property is worth
• Whether there is a mortgage or other debt
• The total value of the estate
• Whether other assets and exemptions reduce the taxable estate
• Whether the Residence Nil Rate Band applies
• Whether any unused allowance can be transferred from a spouse or civil partner
• Who inherits the property
• Whether gifts or other transfers need to be taken into account

So a family home can potentially be subject to Inheritance Tax, but the available allowances can substantially reduce the amount of tax due.

How much is the Inheritance Tax allowance in 2026/27?

For the 2026/27 tax year, the standard Inheritance Tax Nil Rate Band is £325,000. There is also a separate Residence Nil Rate Band of up to £175,000 for qualifying estates.

For a married couple or civil partners, unused allowances can potentially be transferred, meaning a qualifying estate can potentially benefit from up to £1 million of combined allowances. However, this isn’t automatic in every situation and depends on the circumstances of both estates.

What is the Residence Nil Rate Band?

The Residence Nil Rate Band (RNRB) is an additional Inheritance Tax allowance specifically connected with a qualifying residence. It can provide an additional allowance of up to £175,000 when a qualifying home is passed to direct descendants — such as children or grandchildren.

For more on how the RNRB works, including the taper rules and transferred allowances, see our Residence Nil Rate Band guide.

Who can inherit the home and qualify for the RNRB?

The RNRB is generally available where the home is inherited by direct descendants. This can include:

• Children and grandchildren
• Stepchildren
• Adopted children
• Foster children in qualifying circumstances
• Certain other direct descendants

Importantly, leaving your home to a friend, sibling or more distant relative will not normally satisfy the direct-descendant condition for the RNRB. The exact legal definition matters, so families with unusual circumstances should check the current HMRC rules or obtain professional advice.

What if the house is worth less than £175,000?

The Residence Nil Rate Band is subject to the value of the qualifying residential interest. HMRC describes the available amount as the lower of the value of the home inherited by direct descendants and the maximum RNRB available.

So if your qualifying home is only worth £150,000, the available RNRB would generally be restricted to £150,000 — not the full £175,000 maximum.

What happens if the estate is worth more than £2 million?

The RNRB is tapered for larger estates. For every £2 that the net value of the estate exceeds £2 million, the available RNRB is reduced by £1.

For estates close to or above £2 million, professional advice becomes particularly valuable. The taper can significantly erode the RNRB and alter the overall tax position.

What if you own the property jointly?

Many couples own their home jointly. The way the property is owned can matter when calculating the deceased person’s estate.

The Inheritance Tax valuation of jointly owned property can also involve specific rules, so you shouldn’t assume that simply dividing the property’s market value by two will always give the correct IHT figure.

Does a mortgage reduce the value of the property for Inheritance Tax?

Generally, debts and liabilities can be relevant when calculating the net value of an estate. If a property is worth £500,000 and there is a £100,000 mortgage, the net value attributable to the property may be substantially different from its gross market value.

However, the treatment of debts can depend on the precise circumstances and how the debt is secured and used. An estate shouldn’t simply calculate Inheritance Tax by looking at the house’s sale value alone.

What happens if you downsize?

Suppose someone owns a large family home but later sells it, moves into a smaller property, moves into rented accommodation, or gives away their home. It might appear they have lost the ability to claim the RNRB.

However, downsizing rules can allow an estate to retain some or all of the benefit that could otherwise have been lost, provided the relevant conditions are satisfied. These rules consider:

• The value of the former home
• When it was sold or transferred
• The value of any replacement property
• What other assets remain in the estate
• What is ultimately inherited by direct descendants

So downsizing doesn’t necessarily mean losing the RNRB — but the rules are complex and checking them carefully is important.

What if I sell my house and give the money to my children?

This is very different from simply leaving your home to children in your will. If you sell your home and give the proceeds away, the gift may become relevant to Inheritance Tax. Gifts — including money, property, and land — can include potentially exempt transfers (PETs).

HMRC confirms that gifts made during the seven years before death can potentially be relevant to Inheritance Tax, depending on the circumstances and exemptions available. See our guide to the seven-year rule for a full explanation.

What is a gift with reservation of benefit?

This is particularly important when people try to give their home away while continuing to live in it. For example: a parent transfers legal ownership of their house to their child but continues living there rent-free.

Simply transferring legal ownership doesn’t necessarily remove the property from the parent’s estate. This can fall within the gift with reservation of benefit rules, and HMRC specifically gives this as an example of a situation where the property may remain relevant to the estate.

This is one area where professional legal and tax advice is extremely important before taking any action.

How is a property valued for Inheritance Tax?

The value used for Inheritance Tax purposes isn’t “what you paid for the house.” Instead, the property is generally valued at its open market value at the date of death. Factors can include:

• Location and property size
• Condition of the property
• Comparable properties recently sold nearby
• Development potential or land value
• Ownership structure (joint tenants vs tenants in common)
• Outstanding mortgages and relevant liabilities

For substantial or unusual properties, obtaining a professional valuation is sensible.

Worked example: £750,000 estate including a £500,000 home

Can I reduce Inheritance Tax on my property?

There are several areas worth considering as part of legitimate inheritance planning:

1. Understand your available allowances — NRB, RNRB, transferred allowances, and spouse/civil partner exemptions
2. Review your will — your will determines who receives assets and can affect which allowances and reliefs are available
3. Consider lifetime gifts carefully — the seven-year rule and gift-with-reservation rules must be understood first
4. Review property ownership — how a property is owned can affect what happens when one owner dies
5. Plan before downsizing — the downsizing rules may preserve some RNRB benefit in qualifying circumstances; don’t assume you’ve lost it
6. Get professional advice where appropriate — property, wills, trusts and lifetime gifts can interact in complicated ways, particularly for larger estates

Common mistakes families make

Frequently Asked Questions

Do you pay Inheritance Tax on a house in the UK?

Potentially, yes. A house can form part of the deceased person’s estate for Inheritance Tax purposes. However, the Nil Rate Band and, where applicable, the Residence Nil Rate Band can reduce the taxable estate.

How much is the Residence Nil Rate Band in 2026?

The maximum Residence Nil Rate Band is £175,000. The amount actually available depends on the detailed eligibility rules and can be reduced for estates above £2 million.

Can I leave my house to my children without paying Inheritance Tax?

Potentially, but leaving the house to children does not automatically make the whole estate exempt. The RNRB may provide an additional allowance if the relevant conditions are met, and the Nil Rate Band provides a further £325,000 of cover.

Does my mortgage reduce Inheritance Tax?

Debts can affect the calculation of the net estate, but the precise treatment depends on circumstances. Don’t assume the mortgage balance can always simply be deducted without considering the applicable rules.

Does selling my house mean I lose the Residence Nil Rate Band?

Not necessarily. The downsizing provisions can allow a qualifying estate to benefit from an amount relating to a former home in certain circumstances.

Can I give my house to my children to avoid Inheritance Tax?

A lifetime gift can have Inheritance Tax consequences. The seven-year rules and gift-with-reservation rules are particularly important if the person continues to benefit from the property.

What happens if I own my house jointly with my spouse?

The answer depends partly on how the property is owned and what happens to the deceased person’s interest. Joint tenants and tenants in common are treated differently, and the property’s valuation can involve specific rules.

Related guides

• The Nil Rate Band explained
• Residence Nil Rate Band: a complete guide
• The seven-year gifting rule
• Free Inheritance Tax Calculator