Will Your Family Home Face Inheritance Tax Soon?

Have you ever sat down to think about what your family home might mean to your kids one day? Not just the memories of backyard barbecues or late-night talks in the living room, but its actual financial weight. With house prices climbing faster than most of us can keep up, there’s a looming reality that’s hard to ignore: in just a decade, the average home could tip over the inheritance tax threshold, leaving your loved ones with a hefty tax bill. It’s a thought that feels distant, almost abstract, until you realize it might hit closer to home than you expect.

The Growing Shadow of Inheritance Tax

Inheritance tax, or IHT as it’s often called, isn’t something most of us think about daily. It’s one of those things tucked away in the “deal with it later” drawer of life. But recent projections paint a picture that’s hard to brush off. By 2035, the average UK home could be worth more than the current £325,000 tax-free threshold, dragging everyday families into a tax bracket once reserved for the wealthy. Let’s break this down and figure out what it means for you.

Why House Prices Are the Culprit

Homes aren’t just places to live anymore; they’re financial assets that keep growing in value. In January 2025, the average UK house price sits at around £268,548. Sounds reasonable, right? But rewind to 2015, when it was just £176,439. That’s a 62% jump in a decade, and the trajectory isn’t slowing down. Experts predict that by September 2035, the average home could hit £325,461—enough to cross the IHT threshold and trigger a 40% tax on anything above it.

Rising property values are quietly reshaping how families think about inheritance. What was once a simple gift could soon come with a tax sting.

– Financial planning expert

Here’s the kicker: the IHT threshold has been frozen at £325,000 until at least 2029-30. While your home’s value climbs, the tax-free allowance stays stubbornly still. It’s like trying to outrun a treadmill that keeps speeding up. For many, this means the family home—often the biggest chunk of an estate—could push their inheritance into taxable territory.

How Inheritance Tax Actually Works

Let’s get the basics straight. If you inherit an estate worth less than £325,000, you’re in the clear—no IHT to pay. But anything over that gets taxed at 40%, unless you qualify for reliefs. For example, there’s an extra £175,000 allowance per homeowner for passing down the main family home to direct descendants, like kids or grandkids. If both parents own the home, that’s £350,000 on top of the standard £325,000 each, meaning a couple could pass on up to £1 million tax-free.

• Standard threshold: £325,000 per person, tax-free.
• Main residence relief: £175,000 extra for passing the family home to kids.
• Spousal transfer: Unused allowances can pass to the surviving spouse.
• Tax rate: 40% on anything above the threshold (36% if 10% of the estate goes to charity).

But here’s where it gets tricky. If your estate is worth over £2 million, the extra residence relief starts to taper off—£1 for every £2 over the limit. For families with valuable homes in places like London or the South East, this cap could already be a reality. And with house prices rising, more people will hit this wall by 2035.

Who’s Getting Hit Hardest?

Right now, only about 4% of estates pay IHT. But that number’s expected to nearly double to 7% by 2032-33, and it’ll keep climbing as home values soar. The average family isn’t stashing piles of cash or owning multiple properties—they’re just sitting on a home that’s appreciated over decades. For many, the family home makes up 84% of their estate, meaning it’s the primary driver pushing them over the tax threshold.

I find it a bit unsettling to think that something as personal as your home could become a tax burden for your kids. It’s not just numbers on a spreadsheet; it’s the place where you raised your family, where memories were made. Yet, the taxman doesn’t care about sentimentality. That’s why understanding your options now could make all the difference.

Can You Beat the Taxman?

So, what can you do to keep more of your estate in your family’s hands? One option that’s gaining traction is gifting early. Instead of waiting until you pass away, you could give money or assets to your kids while you’re still around. The idea is simple: reduce the size of your estate before it’s taxed. But, as with most things involving taxes, it’s not without complications.

The Seven-Year Rule

Here’s the deal: if you gift money or property and live for seven years afterward, that gift is usually exempt from IHT. But if you pass away within those seven years, the gift could still be taxed, depending on its value and your estate’s total worth. It’s a bit like playing a high-stakes waiting game. Still, for younger, healthier parents, this could be a smart move.

Gifting early can feel like a leap of faith, but it’s one way to see your kids benefit from their inheritance while you’re still here to enjoy it.

– Wealth management advisor

Besides tax savings, early gifting has another perk: it can help your kids when they need it most. About 38% of parents say they’d gift early to help their children buy a home or renovate one. With property prices making it harder for younger generations to get on the ladder, this could be a game-changer.

Other Tax-Saving Tricks

Gifting isn’t the only way to soften the IHT blow. Here are a few other strategies to consider:

1. Use annual exemptions: You can give away £3,000 per year tax-free, and it won’t count toward your estate.
2. Small gifts: Gifts of up to £250 per person per year are exempt, no strings attached.
3. Charity donations: Leaving 10% or more of your estate to charity drops the IHT rate to 36%.
4. Trusts: Setting up a trust can keep assets out of your taxable estate, but it’s complex and requires professional advice.

Each option has its pros and cons, and what works for one family might not suit another. I’ve always thought trusts sound like something out of a period drama, but they can be a practical tool if you’re dealing with a larger estate. The key is to start planning early—waiting until the last minute rarely ends well.

What’s the Emotional Side of This?

Taxes and numbers aside, there’s an emotional layer to inheritance planning that’s hard to ignore. Deciding how to pass on your wealth isn’t just about crunching numbers; it’s about legacy, family, and what you want your life’s work to mean. For many parents, the idea of gifting early feels rewarding because they get to see their kids benefit—whether it’s buying a first home or starting a business.

But it’s not always easy. Handing over a chunk of your savings can feel like letting go of security. What if you need that money later? What if your kids don’t use it wisely? These are real concerns, and they’re worth talking through with a financial advisor or even your family. Open conversations can make a big difference.

Looking Ahead: What Can You Do Today?

The idea of your family home triggering a tax bill in 2035 might feel like a distant worry, but the sooner you start planning, the better. Here’s a quick checklist to get you started:

• Check your estate’s value: Include your home, savings, and other assets.
• Talk to a financial advisor: They can help you navigate IHT rules and reliefs.
• Consider gifting: Even small amounts now can reduce your estate later.
• Update your will: Make sure it reflects your current wishes and tax strategies.

Perhaps the most interesting aspect of all this is how it forces us to think about the future—not just for ourselves, but for the next generation. It’s not just about dodging taxes; it’s about making sure your hard-earned wealth does what you want it to. Whether that’s helping your kids buy a home, funding their dreams, or leaving a legacy that lasts, a little planning now can go a long way.

So, what’s your next step? Maybe it’s a chat with your family about what your home means to you all. Or perhaps it’s time to dig into the numbers and see where you stand. Either way, don’t let the rising tide of house prices catch you off guard. Your legacy deserves better than that.