Inheritance Tax and Your Durham Property: What You Need to Know

Inheritance Tax and Your Durham Property: What You Need to Know

If you own property in County Durham—whether it's a family home, a cottage or a rental flat—understanding how Inheritance Tax (IHT) works in 2025 is essential. With rising property values and frozen tax thresholds, more local families are finding themselves caught in the IHT net, often unexpectedly.

In this blog, we'll walk you through what inheritance tax is, how it applies to property in County Durham, and the practical steps you can take now to reduce or even eliminate the potential tax bill on your estate.

What Is Inheritance Tax?

Inheritance Tax is a tax on the estate (property, money, and possessions) of someone who has died. As of the 2025/26 tax year:

The nil-rate band (NRB) remains at £325,000.

The residence nil-rate band (RNRB) remains at £175,000, available when passing your main residence to direct descendants (children or grandchildren).

The standard IHT rate is 40% on anything above these allowances.

So, if your estate—including property—totals £700,000 and you qualify for both thresholds, your taxable estate would be:

£700,000 - £325,000 - £175,000 = £200,000

Tax payable: £200,000 x 40% = £80,000

County Durham Properties and IHT

County Durham has seen a steady rise in property prices over the past decade. A modest family home in some areas can now easily tip an estate over the £500,000 mark.

Example:

A detached home in Durham City valued at £450,000, plus savings and investments of £150,000, puts an estate at £600,000. Without planning, that could trigger a significant IHT liability

Ways to Reduce Your Inheritance Tax Liability in 2025

1. Use the Residence Nil-Rate Band Wisely

Ensure your property is passed to direct descendants to qualify for the RNRB. This is not automatic—it must be structured correctly in your will.

2. Spouse Exemptions

Assets passed between spouses or civil partners are exempt from IHT. On the second death, unused nil-rate bands can be transferred, potentially shielding up to £1 million.

3. Gift While You're Alive

You can give away up to £3,000 per year tax-free, and larger gifts may be exempt if you survive seven years. Gifting part of your Durham property (or other assets) could significantly reduce your estate's value over time.

4. Put Assets in Trust

Placing property in a trust can offer tax advantages, but trusts are complex and need careful management. This is an area where professional advice is critical.

5. Charitable Donations

Leaving at least 10% of your estate to charity can reduce the IHT rate from 40% to 36%—something to consider in your legacy planning.

6. Get a Professional Valuation

Property valuations are key to IHT calculations. Ensure your County Durham property is accurately valued to avoid overpaying tax or disputes with HMRC.

Why Local Advice Matters

Tax rules may be UK-wide, but their impact can vary dramatically depending on local property values, planning policies, and family situations. A local tax advisor who understands the Durham market is best positioned to help you make smart, tax-efficient decisions.

At The Tax Faculty, we specialise in inheritance tax planning for County Durham residents. Our expert advisors offer tailored advice to protect your estate and your family’s future.

Inheritance Tax is often called a “voluntary tax” because, with proper planning, much of it can be reduced or avoided. But the earlier you start, the better. Don’t let HMRC take more than its fair share—book a consultation with our County Durham tax experts today.