December 22, 2025
Your home is likely to be one of the largest assets you own. Indeed, according to the Halifax House Price Index, in August 2025, the average house in the UK was worth almost £300,000. So, you might be wondering how to efficiently pass on your property, including gifting your home to your children, to minimise an Inheritance Tax (IHT) bill.
In 2025/26, you can pass on up to £325,000 before IHT might be due. This is known as the “nil-rate band”. In addition, you can often use the residence nil-rate band, which is £175,000 in 2025/26, if you leave a qualifying property, including your main home, to a direct descendant.
In addition, you can pass on unused allowances to your spouse or civil partner. As a result, a couple might be able to pass on up to £1 million before IHT becomes due.
Both the nil-rate band and residence nil-rate band are frozen until April 2030. So, even if the value of your estate hasn’t exceeded the threshold for paying IHT yet, it might in the future as the value of your home and other assets rise.
Gifting assets during your lifetime may be an effective way to reduce the value of your estate, though gifts may be included when calculating IHT for up to seven years after they are given.
As a large asset, gifting your home could be useful, but how does it work, and what are the risks?
One of the challenges of passing on property to your children for IHT purposes is that you often want to remain living in your home, which can add a layer of complexity.
If you gifted your home to your child and remained living in it rent-free, although the gift is legally valid, it would be considered a gift with reservation of benefit as you retain an interest in the property. In this case, HMRC would not recognise this as a gift when calculating IHT, so your estate would still potentially be liable for IHT on the property.
Usually, you’ll have two options to gift a property to reduce an IHT bill:
1. Leave your home forever, as if you had sold it. This might be a useful option if you own multiple properties and wish to pass on your home or other property during your lifetime.
2. Remain in your home and pay market rent to your child, who would now be the owner. While this option may reduce an IHT bill, your child might need to pay Income Tax on the rent they receive and if they do not live in the property as their main residence, any future growth in the value is currently subject to Capital Gains Tax (CGT) when they sell.
Unless the arrangement is correctly structured, Pre-Owned Asset Tax (POAT) can also still apply and you may have to pay income tax on any benefit you receive.
It should also be noted that gifting your home does not automatically avoid care-fee assessments as Local authorities can challenge gifts made to avoid paying for care. Even many years later, the local authority can treat the home as still belonging to you when assessing your ability to pay. This is known as deliberate deprivation of assets.
Please note: gifting your home may remove your ability to use the Residence Nil-Rate Band. The RNRB only applies when a qualifying residence is part of your estate at death and left to direct descendants.
If you give your home away during your lifetime, you may lose access to this additional £175,000 allowance, which can increase your future IHT bill rather than reduce it.
As well as understanding the IHT rules, there are also risks that are important to consider before you gift property to your child. Once the property transfer has been completed, you will no longer be the homeowner, and it’s an irreversible decision.
Your child would be able to make decisions regarding the property, including selling it, which can be particularly risky if you plan to remain living there.
While you might not have concerns about them selling the property while you live there, it’s impossible to know what’s around the corner. For example, what would happen if your child faced financial difficulties and needed to sell the property as a result? This could leave you in a financially vulnerable position with fewer options.
One alternative option is to transfer equity to your child. In this scenario, you’d remain on the legal title as the original owner, and your child will be added as an additional owner. This could provide you with some security while still passing on a portion of your property wealth during your lifetime.
Transferring equity can be a complex process, especially if you’re still paying a mortgage. Seeking legal advice could help you avoid mistakes and ensure it’s the right option for you.
There are also tax considerations to assess before you transfer equity to your child.
First, any equity you gift might be included in your estate for IHT purposes for up to seven years after it was given. Second, in some cases, your child could be liable for Stamp Duty if they take on part of a mortgage when they receive the equity. Third, CGT may apply to them in the future.
Again, seeking professional financial and legal advice could help you understand the tax implications of transferring equity.
If you’d like to talk about passing assets, including your property, to your children or other beneficiaries as part of your estate plan, please get in touch.