Inheritance Tax – New Residential Nil Rate Band

Posted: 9th Mar 2017 by Nigel Atkinson Budget 2017, Inheritance Tax

A new residential nil rate band for Inheritance Tax (IHT).

From 6^th April 2017 a residence passed on death to a direct descendant will attract a new allowance. A direct descendant is a child (including a step-child, adopted child or foster child) of the deceased and their lineal descendants.

The amount of the main residence nil-rate band available will be the lower of the net value of the residential property (after deducting any liabilities e.g. a mortgage) or the maximum amount of the band.

When will the allowance apply?

The allowance will be phased in from £100,000 in 2017-18 to £175,000 in 2020-21 and will be limited to one residential property but personal representatives will be able to nominate which residential property should qualify if there is more than one. The property must have been a residence of the deceased and any other properties, such as a buy-to-let property, will not qualify.

If the estate is valued at over £2 million the additional nil rate band will be tapered away by £1 for every £2 that the net value exceeds that amount.

Where part of the main residence nil-rate band might be lost because the deceased had downsized to a less valuable residence or had ceased to own a residence on or after 8 July 2015, the amount which might be lost will still be available provided the deceased left that smaller residence, or assets of equivalent value, to direct descendants.

A claim will have to be made on the death of a person’s surviving spouse or civil partner to transfer any unused proportion of the additional residential nil-rate band unused by the person on their death, in the same way that the existing nil-rate band can be transferred.