Inheritance Tax (IHT) can take a significant chunk out of your estate — especially when property is involved. With UK house prices rising over the years, more families are finding themselves caught in the IHT net, often without realising it.
If you’re wondering how to avoid inheritance tax on a property in the UK, you’re not alone. The good news is, with some forward planning, it’s entirely possible to reduce or even eliminate your IHT liability on property.
In this guide, we’ll explain how IHT works, explore legal strategies to protect your estate, and show how smart property planning can help you pass on more — and lose less to tax.
What Is Inheritance Tax on Property?
Inheritance Tax is charged on the total value of a person’s estate when they die — this includes cash, investments, and property.
In 2025, the standard IHT threshold (nil-rate band) is:
£325,000 per person
Up to £500,000 if you pass on your home to children or grandchildren (including stepchildren and adopted children)
Any value above these thresholds is taxed at 40%.
So, for example:
If your total estate is worth £700,000
And your nil-rate band is £500,000
You’ll pay 40% on the remaining £200,000 = £80,000 in tax
That’s why many families look for ways to reduce inheritance tax on a property before it becomes an issue.
For more information on how IHT works, visit the UK government’s guide here.
Legal Ways to Avoid Inheritance Tax on a Property
Here are some of the most effective and HMRC-compliant strategies:
1. Use the Residence Nil-Rate Band (RNRB)
The RNRB allows you to pass on your main home to direct descendants tax-free up to a further £175,000 per person, on top of the £325,000 nil-rate band.
That’s a combined allowance of up to £1 million for couples — but only if the property is left to children or grandchildren.
2. Gift the Property (with Conditions)
You can give away your property while you’re still alive. This is called a Potentially Exempt Transfer (PET).
If you survive for 7 years after the gift, no IHT is due.
If you pass away within 7 years, a sliding scale of IHT (taper relief) applies.
⚠️ Important: If you still live in the property after gifting it, it may be classed as a “gift with reservation of benefit” — and still subject to tax.
3. Place Property in a Trust
Placing a property into a discretionary trust can help you manage how assets are passed on — and potentially reduce your IHT exposure.
However, trusts are complex, and there may be other tax implications, so always seek professional advice.
4. Downsize and Pass on the Cash
Selling your home and passing on the proceeds may offer more flexibility — especially if combined with annual gifting allowances or trusts.
You can gift up to £3,000 per year tax-free, or larger sums using the 7-year rule.
5. Invest in Buy-to-Let Property Through Strategic Structures
Some landlords use limited companies or pension structures (like SIPPs) to hold property in more tax-efficient ways.
While this doesn’t directly eliminate IHT, it can reduce the overall value of your personal estate, especially when combined with longer-term planning.
Should You Worry About Inheritance Tax?
Yes — especially if:
Your property or portfolio is worth more than £500,000
You don’t have a will or estate plan in place
You want to pass on wealth efficiently to your family
Without planning, a significant portion of your assets may go to HMRC — rather than your children or loved ones.
How Lifestyle Property Group Helps You Build & Pass On Wealth
At Lifestyle Property Group, we don’t just help you invest in property — we help you invest with purpose.
If your goal is to create a lasting legacy for your family, we can help you:
Source income-generating properties in affordable, high-yield markets
Build your portfolio in a tax-conscious way
Introduce you to independent tax and estate planning experts to protect your assets
From your first buy-to-let to your exit strategy, we’re with you every step of the way.
Conclusion
So, if you’re wondering how to avoid inheritance tax on a property in the UK, the key is early and informed planning.
By using available allowances, gifting strategies, trusts, and the right investment structures, you can minimise tax and maximise what your family inherits.
