Inheritance tax on property: how much is due and who pays it?

When someone dies, inheritance tax on property is due if the estate exceeds £325,000 (or £500,000 if you leave your home to direct descendants). Most UK estates pay nothing, but rising property values mean more families now face unexpected bills. This guide explains thresholds, who pays inheritance tax on jointly owned property, proven reduction strategies, and when professional guidance becomes essential. Updated to reflect current HMRC rules and 2026 thresholds. In practice, even seemingly straightforward estates can raise unexpected tax issues, so taking early advice from a solicitor or tax specialist can make a real difference in managing liabilities and avoiding unnecessary costs.

Key Takeaway: How to understand and reduce inheritance tax on property in 2026

• Most UK estates avoid IHT entirely through the nil-rate band (£325,000) and residence nil-rate band (£175,000 for homes to direct descendants). Frozen thresholds mean rising property values are pulling more families into the tax net.
• Inheritance tax and capital gains tax are separate. IHT is paid from the estate before distribution; CGT is paid by beneficiaries only when they sell, calculated from probate value, not original purchase price.

Consult a wills & probate solicitor if your estate exceeds £500,000 or your situation is complex.

How much inheritance tax on property are you likely to pay?

The standard rate is 40% on amounts above your tax-free allowances. Under Section 7 of the Inheritance Tax Act 1984, this rate applies to the “chargeable transfer” of your estate at death.

Real example: Sarah’s estate is worth £475,000 (home £400k, savings £75k). Using the £325,000 allowance, £150,000 is taxed at 40% (£60,000). However, if the home qualifies for the residence nil-rate band, her combined allowance becomes £500,000, reducing her bill to zero.

The main variables determining your bill:

• Estate value: total assets at death.
• Who inherits: spouse, children, or others (affects which allowances apply).
• Asset type: property, cash, business, investments (some have special reliefs).
• Timing of gifts: whether you made gifts in the 7 years before death.

Understanding your thresholds: nil-rate band and residence nil-rate band

Your nil-rate band (NRB) is your baseline tax-free allowance. For 2025–2026, it remains £325,000 per person (Section 8, Inheritance Tax Act 1984). The residence nil-rate band (RNRB) is an additional allowance, currently £175,000, available if you leave your main home to direct descendants.

Allowances by situation:

• Single person: £325,000; up to £500,000 with RNRB.
• Married couples: £650,000; up to £1,000,000 with RNRB.
• Unused NRB and RNRB may transfer to a surviving spouse if conditions are met.

HMRC guidance (IHTM46003) confirms the RNRB applies only to your main residence, not second homes, holiday properties, or investment properties. You must have lived in the property and owned it directly (not via trust, with limited exceptions for downsizing provisions under Section 8D IHTA 1984).

Who qualifies as “direct descendants” for RNRB:

• Children (including adopted and stepchildren) and grandchildren.
• Does not include: siblings, cousins, aunts, uncles, or non-relatives.

Critical taper rule: If your estate exceeds £2 million, the RNRB is reduced by £1 for every £2 over the threshold. At £2.4 million, the entire RNRB is lost. At £2.8 million, you lose both spouses’ combined RNRB of £350,000.

Example: A couple’s estate = £2.5 million. The taper reduces their combined RNRB from £350,000 to £175,000.

Capital gains tax on inherited property: a separate tax you must understand

Capital gains tax on inherited property is not due when you inherit. However, it becomes due when you sell if the property has appreciated since the deceased’s death. Critical distinction: IHT and CGT are separate taxes assessed at different times.

When you inherit, your cost basis “steps up” to the property’s probate value (fair market value at death). This means:

• No CGT on inherited value gain: Any increase from original purchase to death is exempt.
• CGT on post-inheritance gain only: You pay CGT only on increases from death date to sale date.

Real example: Your parent bought a house in 1990 for £80,000. It’s worth £350,000 when they die. You inherit and later sell for £380,000. You pay CGT only on the £30,000 gain (£380k minus £350k probate value), not the £270,000 appreciation your parent achieved.

For 2025–2026, CGT rates on residential property:

• 18% for basic rate taxpayers.
• 24% for higher/additional rate taxpayers.

Your annual exemption is £3,000, so gains below this are tax-free.

Ways to minimise post-inheritance CGT:

• Sell quickly to limit gain.
• Gains below £3,000 are tax-free.
• Private Residence Relief may reduce or eliminate CGT if you live in the property.

Jointly owned property and inheritance tax: key rules

How you own a property determines inheritance tax on jointly owned property. There are two legal structures: joint tenants and tenants in common.

1. Joint tenants (automatic survivorship): When one owner dies, their share automatically passes to the surviving owner without probate. For IHT purposes, the deceased’s share is included in their estate. Critical rule: If the survivor is a spouse, the spouse exemption applies, zero tax, regardless of value. If the survivor is non-spouse (adult child, friend), IHT may be due on the deceased’s share.
2. Tenants in common (separate, named shares): Each owner holds a specified percentage (50/50, 70/30, etc.) and their share passes according to their will. Each share is valued separately and subjected to the owner’s IHT allowances and rates.

Example (joint tenants – spouse): A couple owns a home worth £600,000 as joint tenants. When the first spouse dies, the property automatically passes to the survivor. Zero inheritance tax is due because spouses have an unlimited exemption. Although ownership passes automatically, the deceased’s share is still considered for inheritance tax purposes, but the spouse exemption usually means no tax is payable.

Example (tenants in common – adult child): A parent and adult child own a buy-to-let property (£200,000, 50/50 shares) as tenants in common. The parent’s will leaves their £100,000 share to their other child. That £100,000 share is subject to IHT using the parent’s nil-rate band. If the parent’s total estate exceeds £325,000, IHT of 40% applies to the excess, including this £100,000 share.

Proven ways to reduce inheritance tax on property

While IHT cannot always be eliminated, compliant strategies can significantly reduce your bill:

1. Use the 7-year gift rule: Gifts made more than 7 years before death are completely removed from your estate. If you die within 7 years, taper relief reduces the IHT rate (8% to 40%, depending on year). Requires disciplined record-keeping.
2. Leave your home to direct descendants: The £175,000 RNRB is only available if your home passes directly to children or grandchildren. Leaving it to anyone else, or to certain trust structures, can prevent the relief from applying. Ensure your will clearly names direct descendants.
3. Leave assets to your spouse: No inheritance tax on amounts left to a spouse, regardless of value. However, this delays IHT until the surviving spouse dies. Use structured wills (trusts or lifetime gifting) to avoid the double-hit.
4. Maximise both spouses’ allowances: Married couples often waste the first spouse’s £325,000 allowance by leaving everything to the survivor. Properly drafted wills use the first spouse’s allowance against gifts to children or trusts, preserving more wealth.
5. Gift during lifetime: You can gift £3,000 per year tax-free. Gifts above this become “potentially exempt transfers” (PETs). If you survive 7 years, they’re tax-free. Slower than other strategies but simpler.
6. Leave money to registered charities: Anything left to a registered charity is exempt from IHT. If at least 10% of your net estate goes to charity, the IHT rate on the remainder drops from 40% to 36%.
7. Use life insurance (written in trust): A life insurance policy written in trust provides cash to cover IHT. The payout must be held in trust; otherwise, it increases the taxable estate rather than solving it.

FAQs

How do I avoid inheritance tax on property? You may not eliminate IHT, but you can reduce it using allowances, gifting, and charitable planning. Most families avoid IHT entirely by staying below £325,000 (or £500,000 with RNRB).

Do I pay capital gains tax on inherited property? No, not immediately. You inherit the property at its probate value (fair market value at death), with no CGT due. When you later sell it, you pay CGT only on gains from the date of death onwards, not on the appreciation before death. Your annual exemption is £3,000, so gains below this are tax-free.

Who pays inheritance tax on jointly owned property? If owned as joint tenants and passes to a spouse, zero tax is due (spouse exemption). If it passes to a non-spouse (adult child, friend), the deceased’s share is subject to IHT using their allowances. If owned as tenants in common, each share is separately valued and taxed according to the owner’s estate and will.

Inheritance tax is one of the most preventable taxes in the UK. Couples can pass up to £1 million with zero IHT through proper planning. The cost of a solicitor’s advice is a fraction of the tax bill a poorly drafted will creates later.

This guide is for general information only and does not constitute legal or tax advice; always consult a qualified solicitor or tax adviser for your specific situation.

Ready to plan your estate?

Qredible’s network of specialist wills & probate solicitors can model your estate, identify tax-efficient strategies, and draft a will that maximises what your loved ones inherit.

NEXT STEPS:

• Review your current will: Check if it’s more than 3 years old or drafted before recent HMRC rule updates.
• Calculate your estate value: Add up property, savings, investments, pensions, and life insurance. If the total exceeds £500,000, professional planning is advisable.
• Consider lifetime gifting: If you’re more than 7 years from death, start gifting (£3,000 per year is tax-free). This removes assets from your taxable estate gradually and with certainty.
• Consult a wills & probate solicitor: Book a consultation to model your specific situation, review your current will, and implement tax-efficient strategies. Most initial consultations are free or low-cost.