Contact us 01733 568321

Inheritance tax on residence nil-rate band

In the Summer 2015 budget it was announced that the Government will phase in a new nil-rate band when a residence is passed down directly to a descendant on death; the phasing in starts on 6th April 2017 and is over a 4 year period. Descendant is defined as children, stepchildren, foster children, adopted children, grandchildren and great grandchildren.

Currently the nil rate band available on death for an individual is £325,000, this is expected to remain unchanged until at least 2021.

For deaths in the 2017-2018 tax year the maximum additional residence nil rate band will be £100,000, rising to £175,000 in 2020-2021.

As people get older they consider downsizing to a smaller property from the large family home. It is intended that those that do this will not be disadvantaged.  If the individual dies after 6th April 2017 and the downsizing occurred after the 8th July 2015 they will still enjoy the benefits of the residence nil rate band based on the higher value of property.

The residence nil rate band will be transferable on death between spouses, as the nil rate band currently is. For a couple this could result in a joint total nil rate band of £1m; £650,000 nil rate band and £350,000 residence nil rate band.  It doesn’t matter which individual of the couple dies first or which individual owns the property, the residence nil rate band will still be capable of being carried forward.   Where an estate has a net value of £2m the residence nil-rate band will be tapered to zero; in monetary terms this means for every £2 over the £2m cap, £1 will be deducted from the band available. If the estate has a value of £2.35m (or it could be £2.7m for a married couple) there is no residence nil rate band.

Example :

  • Husband dies in 2021/22 with an estate valued at £2.2m
  • Husband leaves the whole estate (including an interest in the main residence) to his wife
  • Main residence nil rate band on first death is reduced by £100,000 (£200,000 / £2.00)

A couple is defined as a married couple or a civil partnership.

To qualify the residence must have been lived in by the deceased at some stage but it does not have to be their main residence.

Where the will passes the property into a discretionary trust the estate will not be entitled to the residence nil rate band.

Where an interest in possession trust has been set up then the residence nil-rate band will be available.   A disabled persons trust also would qualify for the nil-rate band.

If you believe the new allowance is relevant to you, please do not hesitate to get in touch for some expert advice.

Contact Marie on 01733 568321 or by email marie.craig@rawlinsons.co.uk