Last updated: 14 October 2026
Can gifting your home to your children reduce inheritance tax?
It can, but only if you move out or pay full market rent to live there, and you survive for 7 years after the gift. If you give your home away and carry on living in it rent-free, HMRC treats it as a “gift with reservation of benefit”. It then stays in your estate for inheritance tax (IHT), and your children may also face capital gains tax when they sell it later.
How IHT works on your home
IHT is charged at 40% on an estate above the £325,000 nil-rate band. If you leave your home to your children or grandchildren, the residence nil-rate band of up to £175,000 may also apply. A married couple or civil partners can pass on up to £1 million tax-free, because unused allowances transfer to the surviving spouse. Both bands are frozen until April 2031. The residence nil-rate band tapers away on estates over £2 million.
The 7-year rule
A gift to your children is a “potentially exempt transfer”. It becomes completely free of IHT if you live for 7 years after making it. If you die within 7 years, the gift uses up your nil-rate band first, and taper relief can reduce the tax on any amount above it:
| Years between gift and death | Tax on the gift above the nil-rate band |
| Less than 3 | 40% |
| 3 to 4 | 32% |
| 4 to 5 | 24% |
| 5 to 6 | 16% |
| 6 to 7 | 8% |
The trap: gifts with reservation
If you keep living in the home after giving it away, the gift doesn’t count for IHT. To avoid this, you must:
- move out, or
- pay your children a full market rent, reviewed regularly, or
- share the home with children who also live there and pay your share of the costs (a specific exception)
Paying rent shifts value to your children, but the rent is taxable income for them.
Capital gains tax for your children
When you gift your home, your children take it over at its market value on the day of the gift. If you keep living in it, though, and the gift fails for IHT, they lose the tax-free uplift in value that normally comes on death. They could pay CGT at 18% or 24% on the growth when they sell. Gifting your main residence is usually free of CGT for you, because of private residence relief.
Other ways to reduce IHT on your home
- Leave the home to direct descendants to use the residence nil-rate band
- Make gifts out of surplus income, which are exempt immediately; see gifting money to reduce inheritance tax
- Use the £3,000 annual exemption every year
- Downsize and give away part of the proceeds
- Leave 10% of your net estate to charity to reduce the IHT rate to 36%
- Consider life insurance written in trust to cover the IHT bill
Pensions from April 2027
From 6 April 2027, most unused pension funds will count as part of your estate for IHT. That makes planning for your home more important. See reducing an estate below £2 million.
Frequently asked questions
Can I give my house to my children and still live there?
Yes, legally, but for IHT it is still in your estate unless you pay full market rent.
Do I need to pay stamp duty when I gift my home?
Not usually, if there is no mortgage and no payment. If your children take over a mortgage, stamp duty can apply to the debt they take on.
What if my child gets divorced or goes bankrupt?
The home belongs to them, so it is at risk. That is an important non-tax reason to take legal advice.
Should I use a trust instead?
Trusts can help, but they have their own IHT charges. Take advice first.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with inheritance tax planning. See our inheritance tax planning service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
