As financial planners, we often see clients unknowingly miss out on valuable inheritance tax (IHT) allowances—not because they’re doing anything wrong, but because of something surprisingly simple: how their property is owned.
If you own your home (or part of it) and plan to leave it to your children or grandchildren one day, then this is something you really want to understand—especially if you’re not married.
Let’s walk you through it in plain English.
What Is the Residence Nil Rate Band?
The Residence Nil Rate Band (or RNRB) is a valuable tax break introduced by the government to help families pass on more of the family home to their children or grandchildren, without paying inheritance tax.
Here’s the short version:
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Everyone already gets a £325,000 inheritance tax-free allowance (called the Nil Rate Band).
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On top of that, you can get up to £175,000 extra if you leave your home (or a share of it) to a direct descendant (child, grandchild, stepchild, etc).
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That means a married couple could potentially pass on £1 million inheritance tax-free.
But—and it’s a big but—you only get this extra allowance if things are structured properly.
The Hidden Problem: How You Own Your Home
Let’s look at three common ways people own property, and how it affects their ability to use the RNRB.
1. Sole Ownership
If one partner owns the home in their name only, and they leave it to their spouse or partner who isn’t a direct descendant, they lose the RNRB.
Example: Judith owns a home worth £350,000. She’s not married to Kevin. If she leaves the home to Kevin, he’s not a direct descendant—so the £175,000 RNRB is lost, even if the home eventually goes to their children later on.
2. Joint Tenants
This is very common, especially for married couples. It means you both own the whole property together, and if one person dies, the property automatically passes to the other—regardless of your Will.
That sounds convenient, but there’s a catch: the person who dies doesn’t control where their share goes, so they can’t leave it to their children, and they might not get to use their RNRB.
It works fine for married couples because you can transfer unused RNRB between spouses. But for unmarried couples, this can result in a significant loss of tax allowances.
3. Tenants in Common
This is often the best solution for estate planning. You each own a defined share of the home—say 50/50—and can pass your share to whoever you like in your Will.
If you leave your share to your children, you keep your RNRB.
If you both do this, your family could save up to £140,000 in tax (£175,000 each x 40%).
What If You’re Not Married?
This is where things really matter.
If you’re not married or in a civil partnership, you can’t transfer any unused RNRB to your partner. If one of you doesn’t use it, it’s lost forever.
Example: If Judith dies and leaves her house to Kevin (not a child), she loses her RNRB. If Kevin later leaves it to their daughters, only his RNRB applies. That’s a potential £70,000 in lost tax savings.
So, What Can You Do?
Here are some planning options worth thinking about:
Consider changing how the property is owned
Switching from joint tenants to tenants in common means each person can pass their share to their children and make full use of the RNRB.
Review or update your Wills
Wills need to reflect this ownership change—so each share of the home is left to the right people (usually children or a trust for their benefit).
Think about marriage or civil partnership
It’s not for everyone, but getting married can unlock the ability to transfer unused RNRB and Nil Rate Bands, potentially saving tens of thousands in tax.
Speak to a solicitor and a financial planner
These decisions have long-term tax and legal implications. Getting it wrong can cost your family dearly—but getting it right is relatively simple with the right advice.
Final Thought
It’s easy to assume that if you own your home and have written a Will, you’re covered. But the fine print around how your home is owned could make or break your estate planning.
If you’re not married or want to make sure your family gets the most from the allowances you’re entitled to, we recommend reviewing your property ownership and estate plan sooner rather than later.
A simple change today could save your family tens of thousands in inheritance tax tomorrow.
Need help understanding your options?
We’re happy to walk you through how this applies to your situation and help you get things set up correctly. Just get in touch.
