IHT on the Family Home UK: Inheritance Tax on Your House, the RNRB, and Giving Your Home Away (2026)
The family home is fully in the IHT estate at open market value on death. The RNRB (up to £175,000 per person) gives extra relief when it passes to children or grandchildren. Giving the home away while continuing to live in it does not avoid IHT — the gift with reservation rules bring it straight back. A married couple with the right will can achieve a £1,000,000 threshold.
| Scenario | IHT Threshold | Notes |
|---|---|---|
| Single person, no RNRB (no direct descendants) | £325,000 NRB only | No home or home does not pass to descendants |
| Single person, RNRB applies | £500,000 | £325,000 NRB + £175,000 RNRB on home to descendants |
| Married couple (first death — spousal exemption) | Nil IHT | All to surviving spouse = fully exempt (s18 IHTA) |
| Married couple (second death — no RNRB) | £650,000 | NRB × 2 (transferred); no home to descendants |
| Married couple (second death — RNRB applies) | £1,000,000 | NRB × 2 + RNRB × 2; home to direct descendants |
| Married couple (second death — estate >£2.35m) | £650,000 (RNRB tapered out) | RNRB eliminated at £2,350,000 estate value |
| Property given away — donor still living there | Full value in estate (GWR) | s102 FA1986 gift with reservation — as if never gifted |
IHT and the Family Home: Everything You Need to Know
Is the family home subject to inheritance tax?
Yes. The family home (your primary residence) is included in the IHT estate at its open market value (OMV) on the date of death. The OMV is the price a willing buyer would pay in the open market — typically evidenced by a formal valuation from a RICS-qualified surveyor, or by reference to comparable recent sales in the same area. If you own the property jointly (as joint tenants with a spouse), the entire property passes to the surviving spouse by survivorship on the first death — no IHT on the first death because of the spousal exemption (s18 IHTA 1984). IHT becomes relevant on the second death: the full property value (plus all other estate assets) is included in the survivor's estate. If you own as tenants-in-common, only the deceased's share is included in their estate — the surviving co-owner's share is not in the deceased's estate. The key planning tool for couples is the combination of: (1) Owning as tenants-in-common; (2) Will directing the deceased's share into an NRB discretionary trust on the first death — using the NRB on the first death while giving the survivor access to the property via a life interest. Joint ownership as joint tenants allows the full RNRB to apply on the second death, but wastes the first death's NRB on the property.
The Residence Nil-Rate Band (RNRB): £175,000 extra relief for the family home
The Residence Nil-Rate Band (RNRB — s8D IHTA 1984) provides an additional IHT allowance of up to £175,000 per person (2025–26) when the deceased's home (or a share of it) passes to direct descendants. Direct descendants include: children (biological, adopted, stepchildren — s8K(4) IHTA 1984); grandchildren; great-grandchildren (and further lineal descendants). The RNRB applies where: (1) The deceased had a qualifying residential interest (their home, or a former home that they lived in and owned) at some point; (2) The home passes on death (directly or via a will trust, including a life interest trust — IPDI) to direct descendants. Combined RNRB and NRB for a married couple: each individual has NRB £325,000 + RNRB £175,000 = £500,000. On the second death, unused allowances from the first death are transferable (IHT402 and IHT436 claims): total combined threshold = £650,000 NRB + £350,000 RNRB = £1,000,000. RNRB taper: the RNRB tapers by £1 for every £2 by which the estate exceeds £2,000,000 — completely eliminated at £2,350,000. For large estates, the RNRB provides nil benefit. Downsizing addition (s8FA IHTA 1984): if the deceased downsized or sold their home and assets of equivalent value pass to direct descendants, the RNRB may still be claimed even if no home is in the estate at death.
Giving your home away to children: gift with reservation of benefit
A common intention is to give the family home to children during the donor's lifetime to remove it from the IHT estate. This strategy largely fails due to the gift with reservation of benefit (GWR) rules under s102 Finance Act 1986. If you give your home to your children and continue to live in it (even rent-free), the gift is a 'gift with reservation of benefit' — the property remains in your IHT estate as if the gift had never been made. The key requirement for avoiding GWR: the donor must fully relinquish the asset — they cannot continue to enjoy the property in any material way. Options to avoid GWR: (1) Give the property away and move out permanently — starting the seven-year PET clock. (2) Sell the property and give the proceeds (cash PETs — seven-year clock). (3) Give the property and pay a full market rent to the children to continue living there — a genuine commercial arrangement without a retained benefit (the rent makes the gift effective; no GWR). The pre-owned assets tax (POAT) under Finance Act 2004 provides a further catch for situations where a person disposes of assets and then enjoys them — an income tax charge applies on the benefit. If you already tried to give your home away and live in it, seek specialist advice immediately.
CGT on giving your home away during your lifetime
Giving your home to your children (or other persons) is a disposal for CGT at its market value on the date of the gift (s17 TCGA 1992). For most people, the main home is covered by Private Residence Relief (PRR — s222 TCGA 1992): if the home has been the donor's only or main private residence throughout their period of ownership, the gain on disposal (including a gift) is fully exempt from CGT. So for the typical family home gifted to children: CGT is usually nil (full PRR). But if the home has not been the donor's only residence for the entire period, only the PRR-eligible proportion of the gain is exempt. For properties used partly for business, or where a letting history exists, the PRR relief may be partial — and the gift triggers a CGT charge on the non-exempt gain. The IHT position on the same gift: if the gift is a genuine PET (the donor fully moves out, pays commercial rent, or relinquishes the property entirely), the seven-year PET clock starts — but the home may no longer be in the estate to qualify for the RNRB on the donor's death.
Equity release and IHT: reducing the home's value in the estate
Equity release (a lifetime mortgage secured on the property) allows the homeowner to extract a lump sum from the value of the home, which can then be used for spending (quality of life), gifting as PETs, or other estate planning. The IHT effect: the outstanding equity release loan (capital plus any rolled-up interest) is a deductible liability against the property's value in the estate. A property worth £600,000 with a £200,000 equity release mortgage has a net IHT value of £400,000. The cash released can: be spent immediately (reducing the estate); be gifted to children (PETs — seven-year clock); fund a regular pattern of gifting from income (s21 IHTA — normal expenditure from income exemption if from income). Equity release does not trigger CGT (a mortgage is not a disposal). The RNRB can still apply on the net property value (after deducting the equity release loan) that passes to direct descendants. Equity release has costs: the interest compounds rapidly, and the loan can grow to exceed the property value if the homeowner lives many years. Products with a 'no negative equity guarantee' protect the estate from owing more than the property is worth. Specialist independent financial advice is required before taking equity release.
Tenants-in-common, the NRB trust, and the family home
The classic IHT planning structure for a married couple owning a family home is: (1) Convert from joint tenants to tenants-in-common (a 'severance of joint tenancy' — a simple form lodged at HMLR); (2) Each make a will leaving their half share of the home (on first death) into an NRB discretionary trust — using the NRB (£325,000) on the first death to shelter up to £325,000 of the property from IHT on the first death; (3) The surviving spouse has a life interest in the trust property — they can continue to live in the home. This structure uses the NRB on the first death, as well as the transferred NRB and RNRB on the second death. However, since the introduction of the transferable NRB in 2007 (allowing the unused NRB to transfer to the surviving spouse), this structure is less commonly necessary for the NRB itself — the NRB can transfer without a will trust. Its residual value is for: (a) estates where the NRB on first death would otherwise be used against other assets (not the property); (b) blended families where the first deceased wants the capital protected for their children; (c) care home fee planning (though this is complex and the local authority may challenge it).
Frequently Asked Questions
Does the family home attract inheritance tax in the UK?
Yes. The family home is included in the IHT estate at open market value on death. However, the Residence Nil-Rate Band (RNRB — up to £175,000 per person in 2025–26) provides extra relief when the home passes to direct descendants (children, stepchildren, grandchildren). For a married couple, the combined threshold — NRB + RNRB for both individuals — can reach £1,000,000. The RNRB tapers for estates above £2,000,000, eliminating it entirely at £2,350,000.
Can I give my house to my children to avoid inheritance tax?
If you continue living in the property after giving it away, the gift is caught by the 'gift with reservation of benefit' (GWR) rules (s102 Finance Act 1986) — the property remains in your IHT estate as if the gift had never been made. To make a genuine gift: you must move out permanently, or pay a full commercial market rent to the new owners. A genuine gift starts the seven-year PET clock — if you survive seven years, the gift is exempt. But CGT (usually nil if the home was your main residence throughout — Private Residence Relief) and loss of the RNRB (as the home may not be in the estate at death) are also considerations.
What is the Residence Nil-Rate Band (RNRB)?
The RNRB (s8D IHTA 1984) is an additional IHT allowance of up to £175,000 per person (2025–26) when the family home (or a share of it) passes to direct descendants (children, stepchildren, grandchildren — including via certain will trusts). For a married couple, the combined RNRB is up to £350,000 (both allowances), with unused RNRB from the first death transferable to the survivor (form IHT436). Combined with the NRB (£650,000), the total threshold for a couple can be £1,000,000. The RNRB tapers at £1 for every £2 above £2,000,000.
Does equity release reduce inheritance tax on the family home?
Yes. An outstanding equity release (lifetime mortgage) is a deductible liability against the property in the IHT estate — reducing the net value of the home included in the estate. Cash released can also be gifted (PETs — seven-year clock) or spent, further reducing the estate. The RNRB still applies on the net property value passing to direct descendants. Equity release compounds quickly — take independent financial advice before proceeding.
Should I own my home as joint tenants or tenants in common for IHT?
As joint tenants, the whole property passes to the surviving spouse by survivorship on the first death — no IHT (spousal exemption). On the second death, the full property is in the survivor's estate. As tenants-in-common, each owner holds a distinct share: only the deceased's share is in their estate on the first death, potentially allowing the NRB to be applied against it and sheltered in a will trust. For most couples today, the transferable NRB makes the tenants-in-common NRB trust less necessary — but it remains useful for blended families, care home planning, and large estates.
Direct Your Home to the Right People — With a Legally Valid Will
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