One of the common questions we’re asked when giving financial advice, is whether you can give your home away to help reduce inheritance tax.
The Government’s current rules and regulations mean your home is part of your estate for Inheritance Tax (IHT), but there are special allowances.
If someone dies on or after 6 April 2017 and they owned their own home or share of one, their estate may be entitled to an additional allowance. This is known as the residence nil rate band (RNRB). The RNRB can increase the amount passed on tax-free if you leave your home to direct dependents, children or grandchildren for example. The extra amount for 2021 to 2026 is up to £175,000, or the value of the property whichever is lower. If the person who died did not use their residence nil rate band, the unused allowance can be transferred to a surviving spouse or civil partner.
If you leave your home to another person, it counts towards the value of the estate.
What is the 7-year rule?
The seven-year rule means that tax may still be due on any gifts you give unless you live for seven years after gifting them.
If you move out of your home, gift it to someone and live for a further seven years, you will not normally pay inheritance tax. However, there are conditions you need to consider if you’d like to continue living in the property after it’s been transferred to another person.
You must:
- Pay rent being charged on similar rental properties in the area
- Pay your share of the bills
Understanding taper relief
If the total value of gifts made during the seven years before you die is over the £325,000 tax-free threshold, what’s known as ‘taper relief’ on a sliding scale is applied. So should you die before the seven years have been completed, your home will be treated as a gift and may be taxed depending on:
- The gift’s value
- When the gift was given
- How much of your allowances have already been used
The amount of inheritance tax the recipient could pay after applying taper relief:
| From date gift to date of death | Rate of tax on the gift |
| 0 to 3 years | 40% |
| 3 to 4 years | 32% |
| 4 to 5 years | 24% |
| 5 to 6 years | 16% |
| 6 to 7 years | 8% |
| 7 years + | 0% |
A note of caution
The seven-year rule does not apply if you give away property at least seven years before you move into a care home. This could then be classed as a deprivation of assets which means there’s no time limit. In other words, the Local Authority can look as far back as they like.
If the Local Authority decides a deliberate deprivation of assets has taken place – for example, if you purposefully transferred the assets to your family to avoid paying for care – then they could be held responsible for paying the costs of your care.
Our tax planning service ranges from using personal allowances, exemptions and tax-efficient investments, to preparing for retirement or passing on wealth. Why not get in touch for a no obligation chat to see how I can help maximise your tax allowances.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any Tax relief is dependent on individual circumstances.
Sources
gov.uk, February 2026
Age UK, Factsheet 40 Deprivation of assets in social care, September 2025
SJP Approved 27/03/2026