What is Inheritance Tax on a House?
Inheritance Tax is a tax on the estate (property, money, and possessions) of someone who has passed away. In the UK, the standard IHT rate is 40% on the value of the estate above the nil-rate band (£325,000 as of 2025). Additionally, if a house is passed to children or grandchildren, an additional residence nil-rate band (RNRB) may apply, but the tax can still be substantial if not planned properly.
1. Use Your Nil-Rate Band and Residence Nil-Rate Band Effectively
The government offers a nil-rate band allowance, meaning the first £325,000 of your estate is exempt from IHT. For a house left to direct descendants, an additional residence nil-rate band of up to £175,000 (2025 rates) applies. Ensure you structure your estate to fully utilise these allowances by:
- Leaving your main residence to children or grandchildren
- Considering transferring assets between spouses to maximise tax-free thresholds
2. Consider Gifting Your Property During Your Lifetime
One effective way to reduce IHT is to gift your house or shares in the property to your heirs during your lifetime. If you survive for seven years after making the gift, the property is generally exempt from IHT. Remember:
- Keep detailed records of gifts
- Be aware of the 7-year rule to avoid unexpected tax liabilities
- Consult Lanop for structured gifting plans to protect your assets
3. Set Up a Trust to Protect Your Property
Trusts can be powerful tools to protect your house from IHT by legally transferring ownership to a trustee for the benefit of your heirs. Types of trusts include:
- Discretionary trusts
- Interest in possession trusts
- Bare trusts
Trusts can help control how and when your property is passed on, potentially reducing tax liabilities and protecting your estate from creditors or divorce settlements.
4. Leave Your Property to a Spouse or Civil Partner
Transfers of assets between spouses or civil partners are exempt from Inheritance Tax. By leaving your house to your spouse, you can:
- Defer IHT until the surviving spouse passes away
- Combine both spouses’ nil-rate bands and residence nil-rate bands, effectively doubling the tax-free allowance
- Plan for efficient wealth transfer with the help of Lanop’s tax advisors
5. Make Charitable Donations from Your Estate
Leaving a portion of your estate, including your property, to a registered charity can reduce the Inheritance Tax rate from 40% to 36% on the remaining estate, if you donate at least 10% of your net estate. Charitable giving is not only tax-efficient but also supports causes important to you.
Why Choose Lanop for Inheritance Tax Planning?
At Lanop Business and Tax Advisors, we specialise in personalised inheritance tax planning for homeowners across the UK and UAE. Our expert advisors help you navigate complex tax rules, implement effective strategies, and protect your property for future generations.
Conclusion
Avoiding or minimising Inheritance Tax on your house requires careful planning and understanding of current UK tax laws. By utilising your allowances, considering lifetime gifts, trusts, spousal transfers, and charitable giving, you can preserve your estate’s value and provide peace of mind for your family. Contact Lanop Business and Tax Advisors today to start your tailored inheritance tax planning journey.