Property can pass between spouses and civil partners with no inheritance tax. However, as with other assets, when this passes to unrelieved recipients, it is charged to IHT. There is an additional nil rate band (the Residence Nil Rate Band) of up to £175,000, potentially taking the tax-free threshold to £500,000 (when including the £325,000 nil rate band) if a parent leaves a residence (or former residence) to their children (including adopted, foster or stepchildren) or grandchildren. This can include a property that is not a residence at death, providing the parent lived in it as their home at some point during their life. Still, there are some rules you should know: The Residence Nil Rate Band applies in full only if the total estate is worth less than £2 million. If the estate is worth more than £2 million, the property allowance decreases by £1 for every £2 the estate’s worth exceeds £2 million. Homes held in a discretionary trust do not qualify for the £175,000 property allowance, even if the beneficiaries are the estate holder’s children or grandchildren. If your parents give you their house whilst they’re still alive and whilst this may be a gift for various taxes, there are some ‘anti-avoidance’ measures that often prevent this from being effective for IHT. If your parents continue living in the property after giving it to you, it could be considered a “gift with reservation of benefit,” meaning they still benefit from it. In this case, the property counts toward the total estate value and can actually be worse overall from a tax perspective. There are some ways in which this can be avoided that may include the following but there is a bit of a minefield of rules around this and specialist advice is generally required. Paying rent equal to the full commercial rate for the property can ensure that there is no reserved benefit. Additionally, if your parent lives in the property and shares it with you whilst you also live there, with you each paying you own proportions of the bills and you continue to live in the property until your parent’s death then this can also ensure that the original gift was effective for inheritance tax. If your parents pass away within seven years of giving their house to you, it’s treated as a gift, and the seven-year rule applies.