It means the family home is the most valuable asset for many clients. Practitioners can expect more enquiries from clients about the benefits and drawbacks of transferring their home to minimise the potential IHT liability on death.

IHT rates

The £325,000 NRB has been frozen until at least 2031. In addition to the IHT exemptions for gifts to spouses and to charity and the NRB, there is the valuable residence NRB of up to £175,000.

Both the NRB and RNRB are transferable, so any unused element remaining unused on the first death can be transferred to the surviving spouse. This means the total NRB/RNRB available to spouses/civil partners is up to £1m.

The RNRB requires careful consideration to ensure it is utilised effectively. The allowance applies as follows:

It is available where the deceased left their eligible main residence to descendants (lineal descendants and other qualifying beneficiaries).
To qualify, the property must be ‘eligible’ (which is not strictly defined). The deceased is expected to have lived there as their home at some point.
Taper relief applies where the value of the estate exceeds £2m. The amount of RNRB is reduced by £1 for every £2 the net estate exceeds £2m. Estates exceeding £2.35m (or £2.7m where there is a transferrable RNRB) will therefore fall outside of the RNRB.
There are also downsizing provisions. These apply where the eligible family home was sold or transferred (after 8 July 2015) for a smaller property; and their direct descendants inherit some or all of the estate

Inter vivos gifts

Clients may be considering a transfer of the property to their children, but this raises several issues. Its value may be included on death for the purposes of IHT if the transfer/gift took place within 7 years of death.

If the client intends to continue living in the property, the reservation of benefit rules may apply (unless they will be paying the full market rent).

There is also the risk that if the client is facing the prospect of residential care, the local authority could treat the transfer as a deprivation of assets; and include the value of the property in its assessment of care fees.

There is no time limit as to how far back the LA can look into such transactions. However, councils should not automatically assume a gift is a deprivation of assets.

One option could be a transfer of the equity only in the property to the children, but this may also raise IHT implications. Clients also need to appreciate the potential implications for their family relationships, for example where there is a breakdown in relationship with the children; or a recipient is made bankrupt or goes through a future divorce.

Another option is severing the joint tenancy if the spouses are co-owners. Each can then make a Will creating a life interest trust in their respective half share in favour of the other spouse. This will protect half the equity should the surviving spouse be assessed in future for care home costs.

This is a complex area, which is covered in detail in our upcoming conference on the topic with Parisa Jones. Available at Plymouth, Manchester, Gateshead and Southampton. Discover our LAW2026 events.