For many families the family home is the biggest IHT exposure. Here’s how the rules work and the legal strategies that can protect it.
Rising property prices have turned inheritance tax from a niche concern into a mainstream worry. In 2026, the average house price in England is well above £300,000, and in many parts of the South East and London it exceeds £500,000. For families who bought their home decades ago, a modest semi-detached house can now generate a six-figure IHT bill.
The good news is that Parliament has built specific protections for the family home into the IHT system — but they only work if your will is set up correctly. Many families pay more IHT than they need to simply because their paperwork is out of date.
Estimate your estate’s IHT bill including the residence nil-rate band
Inheritance tax is charged at 40% on the value of your estate above certain tax-free thresholds. For a basic estate without any planning, the threshold is just £325,000 — the nil-rate band. On an estate worth £600,000, that means a potential IHT bill of £110,000 (£600,000 minus £325,000, multiplied by 40%).
The problem is compounded by the fact that property is illiquid. The beneficiaries of an estate often cannot access the cash to pay the IHT bill until the property is sold — but HMRC requires IHT to be paid within six months of death. This can create a serious cash flow problem for families who inherit a property-heavy estate.
Every individual has a nil-rate band (NRB) of £325,000 — the amount they can leave on death completely free of IHT. This has been frozen at £325,000 since 2009 and will remain frozen until at least April 2030.
The nil-rate band covers the total value of your estate — property, savings, investments and any other assets — minus any debts or liabilities. If your estate is worth less than £325,000, no IHT is due regardless of who inherits.
This is the most important allowance for homeowners and it is frequently missed. The residence nil-rate band (RNRB) provides an additional £175,000 of tax-free allowance — but only if the family home (or the proceeds from its sale) is left to direct descendants.
Direct descendants means children, grandchildren, stepchildren, adopted children and their spouses or civil partners. It does not include siblings, nephews, nieces, or friends.
If you leave your home to your children, your total IHT-free allowance is £325,000 (NRB) plus £175,000 (RNRB) = £500,000. This means an estate worth up to £500,000 could pass entirely free of IHT.
Estate worth £550,000 including family home
The RNRB begins to taper away for larger estates. For every £2 the estate exceeds £2 million, the RNRB is reduced by £1. Estates worth more than £2.35 million receive no RNRB at all.
For married couples and civil partners, both the nil-rate band and the residence nil-rate band are transferable between spouses. This means that when the second partner dies, the surviving spouse can use both sets of allowances.
If the first partner left everything to the surviving spouse (which is exempt from IHT), the survivor’s estate can claim:
Total: up to £1,000,000 can pass free of IHT. For many couples with a family home and moderate savings, this eliminates the IHT bill entirely.
The single biggest cause of unnecessary IHT on property is a poorly drafted or out-of-date will. Here are the most common problems:
If your will leaves your home to someone who is not a direct descendant — a sibling, a friend, a charity — you lose the RNRB entirely. This could cost £70,000 in extra IHT (£175,000 at 40%).
If your will places your home into a discretionary trust (a common estate planning tool from before the RNRB was introduced), the RNRB may not apply. Trusts set up before 2017 may need to be reviewed and updated.
If you die without a will, the intestacy rules decide who inherits. These rules may not align with your wishes and could result in the home not passing to direct descendants — meaning the RNRB is wasted.
Getting a will reviewed and updated typically costs £150–£500 with a solicitor. Given the potential £70,000–£140,000 IHT saving from the RNRB alone, this is almost always money well spent.
If you sell your home and move to a smaller property (or into a care home), you might worry that you lose the RNRB because your estate no longer contains a family home. HMRC has a specific rule to address this.
If you downsized after 8 July 2015 and the former home would have qualified for the RNRB, your estate can still claim the allowance — provided the proceeds from the sale remain in the estate and are passed to direct descendants.
This means downsizing does not have to cost you the RNRB, as long as the money stays in your estate and goes to the right people.
Some people consider giving away their home while they are still alive to remove it from their estate. This is legally possible but comes with serious pitfalls.
If you give your home to your children and survive for seven years, the gift falls outside your estate and is IHT-free. However, if you die within seven years, the full value of the property is still included in your estate for IHT purposes (with some taper relief after three years).
This is the critical problem: if you give away your home but continue to live in it, HMRC treats the gift as if it never happened. The property remains in your estate for IHT purposes regardless of how long you survive. This is called a “gift with reservation of benefit” and it catches many families who think they have planned effectively.
To avoid this, you must either: pay a market rent to the new owner (which creates its own tax complications), or genuinely move out of the property entirely.
Equity release allows homeowners aged 55 or over to access the value tied up in their property without selling it. From an IHT perspective, equity release can reduce your taxable estate because the loan is a debt secured against the property — and debts are deducted from the estate value before IHT is calculated.
For example, if your home is worth £500,000 and you have an equity release mortgage of £100,000, your net estate value is reduced by £100,000, potentially saving £40,000 in IHT.
However, equity release is a complex financial product with significant long-term costs. The interest on equity release mortgages compounds and can dramatically reduce what is left for beneficiaries. It should only be considered after taking independent financial advice.
Estimate your IHT bill including all nil-rate bands