Inheriting a house from your parents

IHT - Inheriting a house from your parents resized

Inheritance tax is a complicated area, but the good news is that many people will be able to mitigate a tax charge when they inherit a house from their parent.

Will I have to pay inheritance tax?

If the value of a parent’s estate is below the IHT threshold of £325,000, or £650,000 for married couples and civil partners, where the full allowance is passed to the surviving spouse, you will not have to pay IHT on anything you inherit, including a house.

If the value of the estate is above that amount, you may have to pay tax on the part of the estate above the threshold, at a rate of 40 per cent.

How to mitigate inheritance tax on a parent’s home

An additional allowance – known as the Residence Nil-Rate Band  (RNRB)– was introduced last year and further reduces the IHT charge against a home. It is currently worth an additional £125,000*and will rise each year until it reaches £175,000* in 2020.  It will then rise in line with inflation from 2021 onwards.*RNRB will be reduced for estates in excess of £2m.

This means if someone owns a home and leaves it to their child or grandchild in their will, they can currently pass on £450,000 (£325,000 + £125,000) worth of property and other assets without triggering a tax charge.

For married couples and civil partners the amount doubles to £900,000. The home allowance tapers down gradually if the value of an estate exceeds £2m.

What if my parents are divorced?

This shouldn’t matter – each parent will be able to take advantage of the individual tax allowances above.

Credit: Nicole

What if the house is ‘gifted’?

If your parents gift you their house at least seven years before their death, it will usually not count towards their estate and no IHT will be due. 

If they gave it to you within seven years, it will most likely attract an IHT charge, if the total estate exceeds the available allowances.

Understand inheritance tax fully with expert advice

Whether you’re a parent or you’ve just been bequeathed an inheritance, it pays to take professional advice to minimize your tax liability.

Tax rules are complex and a wrong move could trigger a wholly avoidable tax charge.

Protect your loved ones from unnecessary taxes with professional advice from theTelegraph’s Inheritance Tax Advice Service.

IHT thresholds depend on your individual circumstances and prevailing legislation, both of which may change in the future.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances. Advice relating to a Deed of Variation or a Will involves the referral to a service that is separate and distinct from those offered by St. James's Place and is not regulated by the Financial Conduct Authority.

St. James’s Place representatives represent only St. James’s Place. The Telegraph Investment, Retirement & Tax Planning Advice Service is provided by St. James’s Place Wealth Management plc, registered in England, registered no. 4113955, registered office St. James’s Place House, 1 Tetbury Road, Cirencester, Gloucestershire, GL7 1FP. Telegraph media Group is an Introducer Appointed Representative of St. James’s Place Wealth Management plc, which is authorised and regulated by the Financial Conduct Authority. Telegraph Media Group Limited, 111 Buckingham Palace Road, London, SW1W 0DT, company registration number 451593.