How to avoid inheritance tax on a property

Inheritance tax is a tax paid on the value of an estate including property, money and possessions. The tax is paid when the estate is handed to relatives after someone has passed away. Inheritance tax can be expensive, but with some careful planning, you can legally avoid inheritance tax on property and save thousands!

How much is inheritance tax on property in the U.K.?

The cost of inheritance tax depends on the value being inherited. There are a couple of exceptions to paying the tax.

You will avoid inheritance tax on property if:

  • The value of the inherited estate is below £325,000
  • The estate is being left to a spouse or civil partner or a charity or community amateur sports club. They do not have to pay inheritance tax.
  • You will avoid inheritance tax parents’ house if the main residence, up to the value of £1M (£500,000 for single occupancy) is being passed down to a direct descendent (eg. children, step-children and grandchildren).

For estates above the threshold of £325,000 inheritance tax is 40%.

How to Avoid Inheritance Tax on Property

There are several ways to reduce the inheritance tax on property, and it’s best to start planning to avoid inheritance tax on property early.

Leave money to a spouse or civil partner

Spouses and partners do not have to pay inheritance tax on property. To leave a property with a spouse or partner it’s crucial that you make a will stating this.

Send gifts

You can avoid inheritance tax on property by gifting money. This method requires some careful planning because gifts and tax gifted seven years before someone dies are not affected by inheritance tax. If a gift is given within 3 years then it will be taxed at 40% if they are part of the estate.

For completely tax-free gifts you can give to weddings and civil ceremonies, but there are some stipulations. Parents can give £5,000 as a tax-free gift to their children for weddings and civil partnerships and grandparents can give £2,500.

Gifts of up to £250 are excluded, so an annual gift of £250 to family is a great way to legally avoid inheritance tax.

Give to charity

Anything you give to charity is tax-free. As an option, you can leave 10% of your estate which will avoid some inheritance tax. Donating your estate to charity reduces the tax rate from 40% to 36%.

Equity release

Equity release is a great option for some, but the pros and cons of equity release should be carefully considered. It enables homeowners to take some of the equity (cash) that’s in the home and pass it on as a gift. Any cash taken out of the house can add debt, so before taking equity release be sure that the tax savings are worth it.

Seek Financial Advice to Avoid Inheritance Tax on property

For families trying to understand and legally avoid inheritance tax on property the best thing to do is seek help from a professional. Professional advice could save hundreds and thousands.


Picture of Bobby Turner

Bobby Turner

Market research, writer & property specilaist for Zoom Property Buyer. Over 10 years in property sector. Previously at WhatHouse?