For most property owners the family home is the single largest asset in the estate. The IHT question on it is not whether tax applies but which of four structural routes you take. This page works the four routes against the same Holloway-family worked example so you can see the trade-offs in figures, not abstractions.

The four routes:

  • Route A. Do nothing structural. Rely on the Residence Nil Rate Band, transferable spouse allowances, and the CGT uplift on death.
  • Route B. Lifetime gift with full market rent paid by the donor for ongoing occupation, per FA 1986 Sch 20 para 6(1)(a).
  • Route C. Lifetime gift of an undivided share with genuine shared occupation, per FA 1986 s.102B(4).
  • Route D. Testamentary Immediate Post-Death Interest (IPDI) for the surviving spouse with capital to the children, per IHTA 1984 s.49A.

Route A is what happens by default. Routes B and C are lifetime gift routes that try to start the seven-year PET clock cleanly. Route D is a testamentary route that uses the spouse exemption and the second-death allowances together. Each route trades inheritance tax against capital gains tax, cash flow, and the practical reality of where the family will live.

The RNRB architecture

The Residence Nil Rate Band sits at IHTA 1984 ss.8D to 8M, inserted by Finance (No. 2) Act 2015 and Finance Act 2016 with effect for deaths on or after 6 April 2017. The headline mechanics:

  • RNRB amount: £175,000 per individual, frozen until 5 April 2031.
  • Qualifying residential interest (s.8H): a property the deceased used as a residence at some point. Pure buy-to-let property never used by the deceased as a home does NOT qualify.
  • Closely inherited (s.8H): passes to a lineal descendant. Per s.8K: children (including step, adopted, fostered), grandchildren, great-grandchildren, and the spouses or civil partners of those descendants. Nieces, nephews, siblings, and unrelated beneficiaries do NOT qualify.
  • Taper: withdrawn £1 for every £2 of net estate above £2,000,000 (s.8D(5)). Fully extinguished at £2,350,000 (single) or £2,700,000 (couple with full transferable RNRB).
  • Transferable RNRB (s.8G + s.8L): unused percentage transfers to surviving spouse, claimed on form IHT436 within two years of second death.

The lineal-descendants rule is the most common point of amateur misunderstanding. A widow leaving the home to a niece gets the £325,000 NRB on the home, full stop. No RNRB. The same widow leaving the home to a grandchild gets the full £175,000 RNRB plus any transferable amount from her late husband. The relationship of the recipient is doing real work.

The downsizing addition

Per IHTA 1984 ss.8FA to 8FE, where the deceased sold a more valuable home on or after 8 July 2015 and either bought a smaller one or did not replace it, the RNRB that would have applied to the larger home is preserved on death, provided equivalent value (cash or other assets) passes to lineal descendants. The downsizing addition is the answer to "I sold the family home to move into a flat. Have I lost my RNRB?" In most cases the answer is no, the RNRB is preserved by the downsizing addition.

The Holloway-family worked example

Persona: Mrs Holloway, widow, age 72. The family home in north London is worth £900,000 (acquired in 1988 for £85,000, latent gain ~£815,000). Stocks and ISA £400,000. Cash £200,000. Net estate £1,500,000. Her husband died in 2020 with full nil rate band and full RNRB unused; transferable amounts claimed on IHT402 and IHT436 already; spouse exemption used on first death with no IHT paid.

Two adult children, both in their 40s, both with their own homes. Mrs Holloway is healthy, lives independently, and is starting to think about the IHT exposure on her death.

Route A: rely on RNRB and transferable allowances

Mrs Holloway does nothing structural. She updates her will to ensure the home and residuary estate pass to her two daughters. Death assumed in 2032.

  • Available allowances: NRB £325k + TNRB £325k + RNRB £175k + TRNRB £175k = £1,000,000.
  • Net estate £1,500,000; above allowances by £500,000.
  • IHT at 40% on £500k = £200,000.
  • Both daughters inherit at probate value; the latent £815k gain is wiped by the s.62 CGT uplift on death. No CGT.

Route A is the baseline. £200,000 of IHT, zero CGT, zero cash-flow disruption during life. Many readers stop here.

Route B: lifetime gift with full market rent

Mrs Holloway gifts the house to her daughters in March 2026. She continues to live in it. To stay clear of GROB she pays full market rent, agreed at £36,000 per year by reference to local lettings comparables, paid monthly by bank standing order, with the daughters declaring half the rent each on their self-assessment returns.

  • CGT on the lifetime gift: connected-party disposal under TCGA 1992 s.17 at market value. Gain £815,000 (subject to private residence relief for the period Mrs Holloway has occupied; PRR likely wipes the gain on a home she has occupied as principal residence throughout). If the home has always been her principal residence, CGT on the lifetime gift is zero.
  • Income tax on the rent: daughters declare £18,000 each per year. At 40% marginal rate (assuming both higher-rate taxpayers), £7,200 each per year, £14,400 combined. Over 7 years, ~£100,800 of income tax.
  • IHT outcome if Mrs Holloway survives 7 years from the gift: house outside estate. Net estate at death £600,000 (ISA + cash). Below combined allowances. IHT zero.
  • If Mrs Holloway dies inside 7 years: the gift fails as a PET, comes back into the estate at gift-date value, taper relief applies to the IHT charge (not the asset value) per s.7(4).

Route B works best where the donor is in good health at the gift date and the underlying asset has full PRR cover, eliminating the CGT cost. The recurring rent cost over the seven-year clock is real cash going out of the donor's life and into the donees' hands (where it is taxed at their marginal rate). The route is genuinely attractive at age 65-70 with a healthy donor; less attractive at 75+.

Route C: s.102B(4) shared-occupation undivided share

Mrs Holloway's younger daughter is divorced and looking to move back in. They agree the daughter will give up her rented flat and live with Mrs Holloway in the family home as her main residence. Mrs Holloway gifts a 50% undivided share to that daughter. Both occupy the property as their joint home. Each pays half the council tax, half the utilities, half the buildings insurance. Mrs Holloway receives no benefit from the daughter beyond the genuine shared occupation.

  • CGT on the lifetime gift: 50% of the £815k gain = £407,500 of gain. PRR wipes the portion attributable to Mrs Holloway's principal-residence period. If PRR is full, CGT zero.
  • GROB: not applicable per s.102B(4). The undivided-share gift is clean; the seven-year PET clock starts on the gift date.
  • IHT outcome at 7 years' survival: 50% of the house (£450,000 at gift date, with subsequent growth on the daughter's slice outside the estate) is outside the IHT calculation. The remaining 50% sits in the estate at death value.
  • Assuming death in 2032 with the home at £1,000,000, the in-estate slice is £500,000. Plus £600,000 ISA + cash = £1,100,000 net estate. Above £1m combined allowances by £100,000. IHT 40% on £100k = £40,000. The other £160k of Route A's IHT is saved.

Route C is the cleanest IHT-saving route where the family living arrangement supports genuine shared occupation. The discipline points are real: the daughter must actually live there, the bills must be shared, the daughter cannot move back out three years later without the GROB re-attaching on the changed arrangement. Each side must hold the discipline for the duration.

Route D: testamentary IPDI (not directly applicable to Mrs Holloway)

Mrs Holloway is widowed, so the IPDI route is in her past, not her future. For the wider population of married couples it is the most common defensive route. The first-to-die's will settles the home (or a share of it) into a will trust with the surviving spouse as life tenant. The life tenant has the right to occupy and to receive any rental income from the trust property. On the second death the trust capital passes to the named remaindermen (typically the children).

  • First death: spouse exemption under s.18 applies to the trust transfer (the surviving spouse is treated as beneficially entitled to the trust capital per s.49(1A)). No first-death IHT.
  • During the surviving spouse's life: the spouse has the right to occupy the home and the trust property is treated as part of their estate for IHT purposes. Spouse cannot deal with the capital, which the trustees hold for the children.
  • Second death: trust value falls into the life tenant's estate for IHT but full TNRB + TRNRB are available; capital passes to the children outside the surviving spouse's personal-estate planning. Defensive against the survivor remarrying and the home being lost to the children.

Route D's defensive value is highest where the children are from a previous marriage, where the survivor is financially vulnerable to a future partner, or where the first-to-die wants to lock the children into eventual ownership without removing the survivor's right to live in the home.

The GROB traps in plain English

Three statutory provisions catch lifetime gifts of the family home where the donor stays in occupation:

  • FA 1986 s.102: the general GROB rule. Where the donor reserves any benefit, the gift is treated as still in the estate at death value.
  • FA 1986 s.102A: the interests-in-land rule, added in 1999 specifically to close the lease-carve-out route from Ingram v IRC [1999] STC 37 (HL). Where the donor gifts an interest in land and retains a benefit, the whole interest stays in the estate.
  • FA 1986 s.102B: the undivided-share rule. Most gifts of undivided shares fall in to s.102, but s.102B(4) carves out the genuine shared-occupation case.

Two statutory carve-outs survive:

  • Full market rent (Sch 20 para 6). Pay the donee a commercial rent and the GROB rule does not apply.
  • Shared occupation of an undivided share (s.102B(4)). Both donor and donee occupy as joint home; donor receives no benefit beyond negligible.

The case law has tightened both sides. Buzzoni v HMRC [2013] EWCA Civ 1684 set out the donor-detriment test for what constitutes a reserved benefit; the Court of Appeal held that a benefit only counts if it is enjoyed at the donee's expense. Phizackerley v HMRC [2007] STC (SCD) 328 caught a cohabiting spouse's half-share gift despite the parties' belief in the carve-out. CIR v Eversden [2003] EWCA Civ 668 closed the spouse-exemption GROB scheme, with FA 2003 statutorily confirming the closure.

The practical filter for the family home: if you continue to live in a property after gifting it, either (i) you pay full market rent and document it, or (ii) the donee genuinely shares the occupation and the s.102B(4) conditions are met. There is no third sustainable route.

For the full statute walkthrough and case-law, see our GROB s.102 family home shared occupation s.102B UK mechanics page and the gift with reservation of benefit entry-tier orientation.

The CGT silent killer

The piece of the puzzle that amateur calculations miss most often is the capital gains uplift on death under TCGA 1992 s.62. Beneficiaries inherit at probate market value; the deceased's accrued gain is wiped out for CGT purposes.

For the family home occupied throughout as principal residence, the CGT exposure on a lifetime gift is typically zero because PRR (private residence relief under TCGA 1992 s.222) eliminates the gain. The CGT silent killer bites hardest on appreciated property that is NOT the donor's principal residence: an inherited BTL, a property the donor moved out of years ago, a second home. For those assets the lifetime gift crystallises 24% residential CGT on the gain immediately, with no holdover available (because s.260 holdover requires a chargeable transfer; non-business property gifted as a PET is not a chargeable transfer).

The order of the routes therefore changes depending on which asset is being considered. For the principal-residence family home with full PRR cover, the IHT-saving lifetime gift routes (B and C) are CGT-clean. For a long-held BTL with no PRR, the same routes can be CGT-disastrous: the £200k IHT saving disappears against the £150k+ CGT cost.

Intestacy: what happens if there is no will

Under the Administration of Estates Act 1925 ss.45-49 (as amended by the Inheritance and Trustees' Powers Act 2014 and most recently SI 2023/758), the distribution where there is no will:

  • Spouse and children: spouse takes personal chattels, statutory legacy £322,000 (SI 2023/758 from 26 July 2023), and half the residue absolutely; children share the other half on statutory trusts.
  • Spouse, no children: spouse takes the whole estate.
  • No spouse, children: children take the whole estate equally on statutory trusts.
  • No spouse, no children: parents, then full siblings, then half siblings, then grandparents, then full uncles and aunts, then half uncles and aunts, in the statutory hierarchy at s.46.

The family home does not pass to the spouse automatically. Where the home value exceeds the statutory legacy plus the spouse's share of residue, the spouse can elect under Sch 2 of the 1925 Act to take the matrimonial home in or towards satisfaction of their entitlement, paying equality money to the other beneficiaries for the excess. Without that election the home is sold and the proceeds distributed.

For most family-home property owners the practical takeaway is that intestacy rarely delivers the result the deceased would have wanted. A will costs £200 to £600 at a high street firm and is the cheapest piece of estate planning available.

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Deed of variation: the post-death redirection

Per IHTA 1984 s.142, beneficiaries of a will or intestacy can redirect their inheritance within two years of death and elect for the redirection to be treated as a disposition by the deceased for IHT purposes. The classic family-home use case: the deceased's will left the home to the surviving spouse outright; the spouse already has a sufficient estate; she varies her inheritance to direct the home to the children instead, using up the deceased's RNRB at first death rather than wasting it.

The deed of variation must be in writing, signed within two years of death, and include the s.142 election. CGT also has a parallel election under TCGA 1992 s.62(6). For the operational mechanics, see our deed of variation page.

The decision sequence

If you are starting from a blank sheet, work through the questions in this order:

  1. Is the home your principal residence with full PRR cover? If yes, CGT is not blocking the lifetime gift routes.
  2. Are you married or in a civil partnership with full transferable allowances available? If yes, the £1m combined allowance often eliminates IHT below £1m net estate.
  3. Is the home passing to direct lineal descendants? If no, RNRB is unavailable and the calculation is harsher.
  4. Is the net estate above or below the £2m taper threshold? If above, the marginal 60% in the taper zone changes the planning maths sharply.
  5. Is there a realistic family living arrangement that would support the s.102B(4) shared-occupation route? If yes, that is often the cleanest lifetime route.
  6. Is the donor in robust health at age 65-72? If yes, the full-market-rent route remains viable. If 75+, the seven-year clock is more uncertain.
  7. Is there a surviving spouse who would benefit from IPDI protection? If yes, the will trust route is the defensive overlay.

The sequence is not linear in practice. The same family will revisit the questions at different life stages and adjust the route mix as health, wealth, and family living change.

The bigger picture

The family home sits at the intersection of IHT, CGT, and family-living reality in a way no other asset does. For most readers the conclusion is that Route A (do nothing structural) is the right default. The £1,000,000 combined allowance, the CGT uplift on death, and the relative simplicity of the route handle most middle-income estates without the complexity of lifetime gifting.

The lifetime gift routes (B and C) earn their complexity above the £1m allowance threshold or where the £2m RNRB taper bites. The IPDI route (D) earns its complexity where there is a surviving spouse to protect and children from a previous marriage or asset-protection concerns to manage.

The architecture has been stable since 6 April 2017 (RNRB introduction) with the freeze extended to 5 April 2031 at Wave 6 close. The reform fronts active in 2026 and 2027 (BPR and APR cap, pensions into IHT) do not change the family-home framework directly but do change the size of the surrounding estate against which the family home is being valued. The four-route decision pillar holds; the figures around it shift with the wider reform calendar.