With property prices steadily increasing over the previous decade, some people will end up paying higher inheritance tax bills than they would have done previously. As higher property prices lead to higher-value estates, people are looking for ways they can mitigate their IHT bills and leave more for their loved ones. This guide will take you through all the key information you need to be aware of regarding properties and Inheritance Tax.
Do I need to pay Inheritance Tax on my home?
As is the case with most assets, inheritance tax is imposed on your property in the event of your death.
However, in April 2017 a new extra allowance was introduced that enables couples to leave a property up to the value of £1 million before any inheritance tax is due on it. This tax-free amount is dependent on who you leave the property to when you pass away and the total value of your estate.
What is a main residence nil-rate band?
This is an extra property allowance that permits couples to leave their homes to family members tax free.
Under these rules, if you are planning on leaving your home to a direct descendent (e.g. a child/step-child or grandchild/step-grandchild), you are eligible for £175,000 in tax-free allowance in the 2021/22 tax year.
It is important to remember that this allowance only applies to a direct descendent, as listed above. For example, if you were planning on leaving your property to a niece or nephew you would not be eligible for this allowance.
If you are unsure whether you qualify for the main residence nil-rate band, one of our financial advisors at Thornton and Baines will be able to give you some guidance over a free Zoom call. Contact us at: https://inheritance-tax.co.uk/contact-us/
Inheritance Tax Thresholds
There has been an increase in residence nil-rate bands between April 2017 and 2020. The table below shows how the values of these have changed.
| Tax year | Nil-rate band | Residence nil-rate band | Total for individuals | Total for couples |
| 2018-19 | £325,000 | £125,000 | £450,000 | £900,000 |
| 2019-20 | £325,000 | £150,000 | £475,000 | £950,000 |
| 2020-21 and 2021-22 | £325,000 | £175,000 | £500,000 | £1 million |
In this tax year, you will be able to pass on £175,000 tax-free to a direct descendent. Your partner/spouse will be assigned the same amount, therefore doubling your tax-free amount to £350,000.
The property allowance is paired with your personal inheritance tax allowance, which is £325,000. With all of your tax-free allowances combined, you may be able to pass on as much as £500,000 tax-free individually, and £1 million with your spouse or civil partner.
Who will be able to inherit my property tax free?
- Children and their spouses/civil partners
- Grandchildren and their spouses/ civil partners
- Great-grandchildren and their spouses/civil partners
- Stepchildren
- Adopted children
- Foster children
- Children who were under guardianship of the people passing on their estate
Who is not eligible to inherit my property tax free?
- Nieces or nephews
- Siblings
- Other relatives
For further guidance on inheritance tax and what this means for your personal situation, visit our website at: https://inheritance-tax.co.uk/