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IHT on Main Residence Nil-rate Band and Downsizing Proposals

Newsletter issue - October 2015.

HMRC have published a technical note covering the proposals, announced in the Summer Budget 2015, to phase in a new residence nil-rate band (RNRB) from 6 April 2017 when a residence is passed on death to a direct descendant.

The proposed rate bands are:

It is proposed that from 2021-22 the band will rise in line with the consumer price index (CPI).

Broadly, the proposals mean that where part or all of the RNRB might be lost because the deceased has downsized to a less valuable residence, or has ceased to own a residence, the lost RNRB will still be available, providing certain qualifying conditions are met (see below). The intention is that an estate will be eligible for the proportion of the RNRB that is foregone as a result of downsizing or disposal of the property as an addition to the RNRB that can be used on death.

If the proposals are enacted, the qualifying conditions for the additional RNRB will be broadly the same as those for the RNRB, that is the:

In addition, under current proposals, the following conditions will also apply:

The technical note, entitled Inheritance Tax on main residence nil-rate band and downsizing proposals provides further details of the proposals and gives some useful examples to illustrate how they will apply. Responses to the note, which are requested by 16 October 2016, will inform the draft legislation to be included in the Finance Bill 2016.

The technical note can be found here. https://www.gov.uk/government/publications/inheritance-tax-on-main-residence-nil-rate-band-and-downsizing-proposals-technical-note/inheritance-tax-on-main-residence-nil-rate-band-and-downsizing-proposals-technical-note