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Minimising your Inheritance Tax Bill with Property

We consider how property ownership can reduce your Inheritance Tax bill.

The Residence Nil Rate Band

In addition to the Nil Rate Band of £325,000, there is also a property allowance available which can allow a greater portion of your estate to be taxed at 0%, the ‘Nil Rate’.

The Residence Nil Rate Band was designed to help people who wished to leave their family home to their loved ones and reduces the Inheritance Tax their estate would have to pay.

How do you qualify for the Residence Nil Rate Band?

For your estate to qualify for this allowance, you must you leave a residence – a property you have lived in – directly to your lineal descendants (children, grandchildren, adopted children, stepchildren, foster children and more).

The property doesn’t have to be your main home and you do not have to have owned or lived in the property for a minimum period. For example, a property that has never been used as your residence, such as a buy to let, does not qualify unless you have previously used it as your residence.

If you satisfy these criteria, you can pass your home to a lineal descendant (see above) for an extra £175,000 free of tax.

Please note:

  • The property does not have to be located in the UK, only within the scope of UK Inheritance Tax laws.
  • Only one property can be nominated, even if you own multiple properties. Your estate’s executor would have to choose which single property would benefit from the allowance.

As with the Nil Rate Band, a spouse can pass on any unused allowance to their surviving spouse, giving married couples or civil partners the chance to pass on property of up to £350,000 free of Inheritance Tax (two lots of £175,000).

Combining the two allowances – the Nil Rate Band and Residential Nil Rate Band – gives an individual a potential allowance of £500,000 (£325,000 plus £175,000), or £1m for a couple – two lots of £325,000 (£650,000) and two lots of £175,000 (£350,000).

For estates worth more than £2m, the Residence Nil Rate Band is reduced by £1 for every £2 over that limit, meaning that there is no residence relief available for estates worth £2.4m or more.

What should you do?

  • You can make a Will if you have not done so already, to avoid your estate being distributed according to government provisions, the Rules of Intestacy; or
  • You can review your existing Will to make sure it still reflects your wishes and to ensure that, where possible, you have made the most of any available Inheritance Tax allowances, particularly if you have prepared Wills that leave assets into a Trust, such as a Nil Rate Band Discretionary Trust. These types of Will Trusts were commonly made before the introduction of the transferable Nil Rate Band between spouses.

If you would like to speak to an expert about reducing your Inheritance Tax liability, ring us on 0203 488 3997 or email us at 

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