What Inheritance Tax planning can I do with my home?

Category: Estate Planning&Financial Planning

For many people, ensuring that their loved ones are taken care of after their passing is a top priority.

The Main Residence Nil Rate Band exempts those with assets below £1,000,000 from Inheritance Tax (IHT). However, some may find that their home attracts an IHT liability on death. If this applies to you, navigating the complex waters of IHT is essential.

Passing it On to Your Partner

Transferring your home to your spouse or civil partner is a straightforward strategy to avoid inheritance tax. This is because of the spouse exemption, which means no tax will be charged on the transfer. It is an uncomplicated and effective way to pass on the value of your home without any tax hassles. However, it’s important to note that this does not necessarily guarantee that your property will eventually pass to your children.

Gifting a Share of Your Home

One proactive approach to reducing inheritance tax is to gift a portion of your property to your offspring or grandchildren while you are alive. You can convert the ownership to joint names with a child and cover your share of the household expenses. This move can significantly reduce the inheritance tax on your estate. The gifted share is exempt from inheritance tax if you survive the gift by seven years. However, keep in mind that capital gains tax may apply if the new owner decides to sell their share in the future.

Renting it Back from Family

One slightly unconventional, yet effective method to avoid inheritance tax is gifting your home to your family and then renting it back from them at market value. This way, after seven years, the property’s value will no longer be counted as part of your estate for inheritance tax purposes. However, it’s worth considering that the monthly rental payments could put a strain on your finances.

Opting for a Lifetime Mortgage

If you choose to take out a lifetime mortgage, you’ll receive a lump sum of money while still retaining ownership of your home. The mortgage debt reduces the value of your home regarding inheritance tax purposes. However, you should be careful because the cost of interest can eat into your lump sum over time.


Selling your home and moving into a smaller house or renting could be a good option. This can free up some of your capital, which you can give to your loved ones. Moreover, selling your property may unlock the main residence nil rate band, which could provide additional inheritance tax allowance when you pass away.

Seek Professional Advice

We highly recommend seeking professional advice that is tailored to your specific needs before making any decisions. A simple mistake could lead to significant financial consequences for your loved ones. The intricacies surrounding capital gains tax, stamp duty, and the new residence nil rate band make inheritance tax planning a complex. However, it is worthwhile to ensure a favorable legacy for your loved ones. in the future.

By delving into your options and consulting with a financial planner, you’re not only safeguarding your legacy but significantly easing the future financial burden on your loved ones.

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