You can pass a home to your husband, wife or civil partner when you die and there is no Inheritance Tax.
If you leave the home to another person in your will, it counts towards the value of your estate.
Your lifetime allowance is £325,000 but if you own your home (or a share in it) your tax-free threshold can increase to £500,000 if:
- you leave it to your children (including adopted, foster or stepchildren) or grandchildren
- your estate is worth less than £2 million
Giving away a home before you die
There’s normally no Inheritance Tax to pay if you move out and live for another 7 years.
If you want to continue living in your property after giving it away, you’ll need to:
- pay rent to the new owner at the going rate (for similar local rental properties)
- pay your share of the bills
- live there for at least 7 years
Otherwise, it counts as a ‘gift with reservation’ and will be added to the value of your estate when you die. That is where you give something away but continue to benefit from it.
You do not have to pay rent to the new owners if both the following apply:
- you only give away part of your property
- the new owners also live at the property
If you die within 7 years
If you die within 7 years of giving away all or part of your property, your home will be treated as a gift.
The 7 year rule will apply unless it is a gift with reservation.
The 7 year rule
No tax is due on any gifts you give if you live for 7 years after giving them. This is known as the 7 year rule.
If you die within 7 years of giving a gift and there’s Inheritance Tax to pay on it, the amount of tax due after your death depends on when you gave it.
Gifts given in the 3 years before your death are taxed at 40%.
Gifts given 3 to 7 years before your death are taxed subject to Taper Relief.
Taper relief only applies if the total value of gifts made in the 7 years before you die is over the £325,000 tax-free threshold.
Taper relief
| Years between gift and death | Rate of tax on the gift |
| 3 to 4 years | 32% |
| 4 to 5 years | 24% |
| 5 to 6 years | 16% |
| 6 to 7 years | 8% |
| 7 or more | 0% |
